The Institute of Financial Professionals Australia (IFPA) is calling for the Compensation Scheme of Last Resort (CSLR) to operate in a fairer manner that does not place most of the funding liability onto financial advisers.
“IFPA’s position is straightforward. The CSLR should reflect all participants in the delivery chain through which client investment funds travel. The current architecture does not. It loads the liability onto the adviser and largely exempts the managed investment scheme ecosystem that, in most cases of large-scale loss, sat much closer to the actual failure,” IFPA president Scott Heathwood noted.
According to CSLR chief executive David Berry, the Shield and First Guardian collapses are now estimated to add another $125 million to the program’s liability in the 2027 financial year, pushing the total annual cap for the initiative past $250 million.
This is after the special levy for the 2026 income year has already cost the financial advice sector an additional $47 million.
“This is unsustainable and, frankly, it is unjust,” Heathwood said.
He suggested the common law and equity principle, which establishes if multiple parties have contributed to a loss liability should be apportioned according to their respective roles and failures to mitigate, has been excluded from the architecture of the CSLR.
IFPA supports the position of the Financial Advice Association Australia, the SMSF Association and the Stockbrokers and Investment Advisers Association, which have all called for managed investment schemes to be brought into the CSLR.
Further they are unanimous that managed investment schemes should be a primary subsector and not merely subject to ad hoc special levies when a collapse is large enough to trigger them.
“A broad-based annual levy applied consistently across managed investment schemes is both fairer and more administratively rational than the current reactive approach,” Heathwood indicated.
IFPA is also against including “but for” losses from Australian Financial Complaints Authority determinations feeding into the CSLR. This involves compensating individuals for returns they might have earned if they had not switched investments.
