The scheme is working. The funding model is not.

The Compensation Scheme of Last Resort published its revised levy estimate for the 2026-27 financial year at the start of July. Total levies across the scheme will be $198.1 million, an increase of $60.7 million on the November estimate of $137.5 million, with the financial advice subsector carrying $122.4 million against the $75.7 million levied in FY26. The scheme now expects to process around 1,600 claims, up from the 900 it first estimated, driven by the tail of Dixon Advisory determinations moving through AFCA faster than expected and the first tranche of claims arising from the Shield and First Guardian master fund failures.¹

The advice subsector cap is $20 million. The overrun is $170.3 million, and clearing it requires a special levy that only the Minister for Financial Services can authorise.

There is no version of this that is sustainable, and the profession is entitled to say so plainly.

The distribution problem, not the compensation principle

It matters how this argument is framed, because the profession has been losing it on framing.

Nobody serious disputes that the people caught in Shield and First Guardian deserve compensation. Almost 11,000 investors are believed to have been affected, with superannuation balances totalling up to an estimated $1.1 billion. These were retirement savings, moved on advice, into products that failed.²

Melinda Kee, herself a First Guardian investor, told the Professional Planner Advice Policy Summit at the National Press Club that opposition to expanding the scheme was "un-Australian", and rejected the moral hazard argument on the basis that moral hazard describes people who knowingly take a risk expecting someone else to carry it, which was not what happened to her. That is a fair point, forcefully made, and it deserves a better answer than the profession has generally given it.³

The answer is that the objection is not to compensation. It is to who pays, in what proportion, and on what timetable.

The advice subsector is being asked to fund losses generated across a chain that includes responsible entities, superannuation trustees, platform operators and lead generators. The advisers now receiving invoices overwhelmingly had no involvement in that chain. Their practices carry professional indemnity cover, meet their AFCA obligations, and have never had a determination go unpaid. They are funding the failures of businesses that have exited, and they are doing it through a levy calculated on headcount rather than on risk, conduct or product exposure.

Treasury has effectively conceded the point

The strongest evidence that the funding model is broken is that Treasury is redesigning it.

Three consultation papers issued at the direction of the Assistant Treasurer, covering the sustainability of the CSLR, member protections in superannuation and lead generation activity, are the direct product of what ASIC described as misconduct at industrial scale. The proposed "Waterfall Framework" would extend the funding base to capture managed investment schemes and SMSFs, the very structures that have proved most costly to the current regime.⁴

That is a tacit acknowledgement that the original design allocated cost to the wrong parties. It is welcome. It is also late, and it does nothing about the invoices already issued.

Modelling of a capped approach suggests the advice subsector would never pay more than $40 million in a single financial year, which would leave advisers roughly $28 million better off in aggregate than the current method, at an estimated $2,570 per adviser rather than roughly $4,370. The comparison is instructive in two directions. It shows how much relief a sensible cap delivers. It also shows that even the improved figure is a material impost on a small practice, and that the per-adviser calculation rests on a headcount that keeps moving.⁵

What the levy is doing to capacity

The behavioural evidence is now reasonably clear.

The FAAA's March member survey found that nine in ten advisers expect the levy to increase the cost of advice, and seven in ten expect it to reduce adviser numbers. That survey followed confirmation of a $47.3 million special levy for 2025-26, of which advisers were in the frame for more than 20 per cent.⁶

Survey intentions are not outcomes, and it is worth being careful here. Adviser numbers have in fact been recovering through the first months of this financial year. But the structural point stands regardless of the weekly register data: a fixed compensation cost divided across a workforce that is not growing meaningfully produces a rising per-head charge, and that charge is passed to clients or absorbed by margin. Neither outcome improves access to advice.

The FAAA has argued that the special levy must be shared broadly across financial services sectors, and has noted the government's demonstrated willingness to provide targeted relief to other industries facing structural headwinds. The argument is sound. Whether it lands is a political question rather than a policy one, and the profession should be clear-eyed that a sector of roughly 15,000 practitioners has limited leverage in that contest.⁷

The tail is longer than the current estimate

Advisers budgeting for this as a two-year problem are budgeting wrong.

AFCA's Data Cube shows Shield and First Guardian complaints continuing to accumulate, competing with Dixon Advisory for capacity in the complaints system, and the scheduling of the federal budget cycle means structural relief is more likely to appear in 2027 than 2026. The gap between the roughly 3,100 complaints lodged to date and the 11,800 investments estimated to be affected is the size of the problem still to arrive.⁸

For context on the broader complaints environment, AFCA received over 4,000 investment and advice complaints in 2024-25, including 1,266 concerning failure to act in a client's best interests. A meaningful share of the eventual CSLR call will come from determinations that have not yet been made against licensees that have not yet failed.⁹

Where this leaves practices

Three practical observations for principals.

Budget for the special levy as a recurring line item, not an exception. On current claim trajectories, FY28 is unlikely to look materially better than FY27, and any structural fix will take at least a budget cycle to legislate and another to take effect.

Model the cost per adviser against your own headcount rather than the published average. Practices with a high ratio of support staff to authorised representatives are treated favourably by a headcount levy. Practices that have added advisers are penalised by it, which is a perverse outcome for a scheme meant to support advice capacity.

Engage with the Treasury consultation rather than the commentary. The Waterfall Framework is genuinely open, and the difference between the current allocation and a capped, broadly shared allocation is worth thousands of dollars per adviser per year. Submissions from practising advisers describing the actual effect on fees and client retention carry more weight in that process than another round of association media releases.

The line to hold

The profession's position should be stated once, clearly, and without qualification on either side.

Compensation for consumers harmed by financial misconduct is a legitimate public policy objective, and the advice profession supports it. A funding model that allocates the cost of product, platform and trustee failures almost entirely to advisers who were not involved is not compensation policy. It is a levy of convenience, imposed on the smallest and least mobile participant in the chain because it was administratively simple to do so.

Treasury's own consultation concedes that. The remaining question is how many practices close before the fix arrives.

This article is general commentary for financial services professionals and does not constitute legal, tax or financial advice.