The Compensation Scheme of Last Resort (CSLR) levy increase in 2025 has raised significant concerns among financial advisors and consumers in Australia. The levy, originally designed to compensate consumers who suffered financial losses due to misconduct, is now set for a sharp increase. This change will impact financial advisors’ business costs and may result in higher service fees for consumers.
To understand the full implications, let’s break down what this levy means, why it’s increasing, and how it will impact both financial professionals and clients.
Financial Advisors & Consumers Affected by CSLR:
| Key Point | Details |
|---|---|
| What is CSLR? | A fund providing compensation to consumers affected by financial misconduct when firms can’t pay. |
| Levy Increase | Rising from A$1,186 to A$4,516 per financial advisor, a 250%+ increase. |
| Total Industry Cost | The estimated levy for the financial advice sector is now around A$70.11 million. |
| Reason for Increase | Compensation claims from firm collapses like United Global Capital and Dixon Advisory. |
| Impact on Advisors | Higher costs for small firms, potential business closures, reduced competition. |
| Impact on Consumers | Higher advisory fees, less accessibility to financial advice. |
| Government Review | The Australian government has initiated a review to assess the scheme’s fairness. |
| More Info | IFA News on CSLR Levy Increase |
The CSLR levy increase in 2025 is set to significantly impact financial advisors and consumers alike. While the levy aims to protect consumers, it also places a heavy financial burden on advisors, potentially leading to higher costs for financial services. The government review will play a crucial role in determining whether adjustments are made to create a more balanced system.
Consumers and advisors should stay informed, participate in industry discussions, and explore alternative financial planning options to navigate these changes effectively.
What is the CSLR and Why Was It Created?
The Compensation Scheme of Last Resort (CSLR) was established in 2024 as a safety net for consumers who suffered losses due to financial misconduct. If a financial firm became insolvent or was unable to meet compensation obligations, the CSLR ensured affected consumers received compensation.
However, funding for the CSLR comes from levies imposed on financial advisors, brokers, and financial services businesses. With the recent wave of firm failures, the cost of maintaining this compensation scheme has skyrocketed, leading to the substantial levy increase in 2025.
The scheme was introduced to build trust in financial services, but its current structure has led to increased costs for professionals who were never involved in misconduct. Financial advisors now find themselves in a challenging position, as they must shoulder these expenses even when they have maintained ethical practices.
Why is the CSLR Levy Increasing?
The primary reason for this sharp increase is the growing number of compensation claims due to the collapse of several financial firms. High-profile cases such as Dixon Advisory and United Global Capital have contributed to a massive backlog of claims.
According to industry sources:
- The levy per financial advisor has increased from A$1,186 in 2024 to A$4,516 in 2025.
- The total industry levy is estimated to be around A$70.11 million.
- The scheme is primarily compensating clients of failed financial services firms rather than ensuring stability in the industry.
This has led to widespread criticism from financial professionals, many of whom argue that the increased burden is unfairly placed on those who had no involvement in past misconduct. As a result, several financial associations are lobbying for a revised funding approach, suggesting that government or corporate-backed contributions should be considered instead of placing the burden solely on advisors.
Impact on Financial Advisors
1. Higher Business Costs
For many independent financial advisors and small firms, the increase in the CSLR levy means significantly higher operational costs. This could force some advisors to rethink their business models or even consider exiting the industry.
2. Industry Consolidation
With smaller firms struggling to absorb the costs, there may be an increase in mergers and acquisitions, leading to less competition in the financial services sector. This could make financial advice less diverse and more expensive for consumers.
3. Reduced New Entrants
The financial advisory sector has already seen a decline in new entrants due to increased regulatory burdens. The levy hike will likely deter young professionals from entering the field, further reducing the number of qualified financial advisors in the long term.
4. Service Model Adjustments
To counterbalance the financial hit, many advisors may shift their business models. Some may introduce subscription-based services, prioritize high-net-worth clients, or reduce the range of financial products they offer.
Impact on Consumers
1. Increased Costs for Financial Advice
Since financial advisors are facing higher costs, they will likely pass these expenses onto clients. This means that consumers will have to pay more for professional financial advice, making it less accessible for the average Australian.
2. Fewer Choices
If smaller advisory firms shut down or consolidate with larger firms, consumers will have fewer options for financial planning. This could make it harder to find personalized, affordable advice.
3. Less Support for Middle-Income Australians
With advisory fees increasing, many middle-income Australians may opt out of seeking professional financial advice, which could lead to poor financial decisions and increased financial risk.
4. More Reliance on Automated Advice
Given the rising costs, some consumers may turn to robo-advisors or self-directed investment platforms, which may not offer the same level of expertise as human advisors.
What’s Being Done to Address This Issue?
Government Review of CSLR
Due to industry backlash, the Australian government has announced a review of the CSLR. The goal is to assess whether the levy distribution is fair and whether alternative funding solutions could be considered.
The review will focus on:
- Who should bear the cost of compensation? Should the government contribute more?
- How can the financial industry remain competitive while ensuring consumer protection?
- What alternative funding mechanisms could be introduced?
Financial professionals and industry groups have been encouraged to participate in consultations and share feedback.
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Frequently Asked Questions (FAQs)
1. What is the CSLR levy?
The Compensation Scheme of Last Resort (CSLR) levy is a fee imposed on financial advisors and financial service providers to fund compensation payments for consumers who have suffered losses due to financial misconduct when a firm is unable to pay.
2. Why has the CSLR levy increased so much in 2025?
The increase is due to a large number of compensation claims following the collapse of financial firms like Dixon Advisory and United Global Capital. As a result, the industry levy has surged to A$70.11 million, significantly raising the per-advisor contribution.
3. How will this affect financial advisors?
Financial advisors will face higher business costs, which could lead to firm closures, reduced competition, and industry consolidation. Many advisors may also increase their service fees to offset the levy.
4. What does this mean for consumers?
Consumers will likely experience higher costs for financial advice, making professional financial services less accessible. Additionally, as small firms struggle, there will be fewer advisor choices, potentially leading to a reliance on robo-advisors and automated financial tools.
5. Is the government doing anything about this?
Yes, the Australian government has initiated a review to assess whether the CSLR levy distribution is fair and explore alternative funding options that do not overly burden financial advisors. Industry professionals are encouraged to participate in the consultation process.
