The Compensation Scheme of Last Resort (CSLR) was sold as a fair, practical solution to restore trust in Australia’s financial services sector. It promised that when things go wrong, consumers wouldn’t be left stranded. But the reality is quite different.
The scheme, in its current form, is deeply flawed—punishing the wrong people and failing the consumers it was designed to protect because of outrageously low compensation caps.
There could be as many as 2,500 families impacted by First Guardian and Shield who have lost more than $150,000. For these families, the damage is often far worse than the dollar figure—many are nearing retirement and simply won’t have the time or earning power to recover.
These aren’t wealthy people speculating on high-risk investments as part of a diversified portfolio. They are everyday Australians who diligently saved for decades, contributing a portion of their wages to super, and investing in markets simply to earn a reasonable return. They invested in a ‘balanced’ or ‘diversified’ low-cost multi-asset manager – precisely the type of solution you would invest most of your savings into.
Overall, superannuation has been an effective way to build wealth. But it’s not optional. It’s compulsory—and when the government mandates where people must direct their retirement savings, it also assumes responsibility for ensuring those assets are adequately protected.
How long does CSLR take?
Dixon Advisory entered voluntary administration in January 2022. The first CSLR payment wasn’t made until June 2024. How is a retiree supposed to wait two years after losing their life savings? By that time, they could lose their home—or, due to stress and uncertainty, their life.
There’s ongoing talk of alternative methods of compensation. There must be. The reality is that many of the licensees involved simply do not have the capital or even the insurance coverage to meet these claims.
Is it fair that this current framework disrupts the livelihoods of 330+ small business owners (advisors) if their AFSL is closed?
Is it fair that under CSLR 15,000 advisers receive bills in the thousands —or even tens of thousands—due to a string of colossal failures that some would argue amount to systemic negligence?
The CSLR must go
We need to think bigger—and fairer. The CSLR must go. And in its place, we need a national solution that protects superannuation members and victims of misconduct without punishing advisers who followed the rules.
Financial advice as a service has endured 15 years of relentless, bumbling, reactive reform. These reforms have made advice more expensive, more complex, and less accessible to the very consumers it is meant to support. More Australians say they want advice than ever before—but fewer receive it. There are fewer advisers than a decade ago, and frankly, no compelling reason for new entrants to join.
Why? Because without fail, the industry continues to eat itself alive. Advisers, associations, and ‘stakeholders’ rush to distance themselves from any scandal, while loudly proclaiming that “if only we would [insert reform idea here], trust would be restored.” The result? Advice remains appreciated—but never trusted.
Sorry to say it, but if anything goes wrong, it’s automatically the adviser’s fault. The advice was bad—retrospectively. They should have known better. And but for their advice (which, mind you, clients are never forced to follow), everything would have been sunshine and lollipops.
Advisers are being held to an impossible standard—judged by AFCA using hindsight and hypothetical alternatives. They’re expected to foresee product failures that auditors, trustees, research houses, and even ASIC miss. Rules that don’t appear in any regulatory guideline appear at the whim of complaints managers. For the princely sum of $4,000–$8,000 (the typical advice fee), advisers are bearing risks that should sit with both product issuers and the broader system.
The CSLR is broken on every level, and every Australian superannuation member and private investor should be aware of it.
This isn’t just an industry issue—it’s a public policy failure that adds directly to the cost of financial advice and risks collapsing the very system it aims to shore up.
Let me explain the issue and provide a solution
1. CSLR creates unfair burdens on the wrong participants
The CSLR places the full financial burden of industry-wide product failures on a narrow group—primarily financial advisers—most of whom act lawfully, ethically, and in good faith.
Advisers do not control product design, management, or risk oversight. Yet they are expected to foot the bill via CSLR levies when these products fail.
These failures are rarely caused by advice. They result from poor, inappropriate, or even fraudulent investment management practices—failures that are often detectable months, if not years, before intervention. Auditors, trustees, research analysts and ratings agencies should catch these issues. Regulators should be alerted. Advisers should be supported—not scapegoated.
Both Shield and First Guardian were approved, rated, and distributed products. Impropriety in each fund was known—or at least knowable—long before ASIC acted. In fact, ASIC was reportedly warned by an internal stakeholder in 2022 and provided with evidence of misconduct.
Advisers today are being handed CSLR bills with no say in the process, no defence, and no voice at the table. Should they issue corresponding invoices to ASIC for its role in these failures?
Sadly, we can’t hurl our tea into the ocean in protest—but the problem is the same: taxation without representation.
2. Real families need support – from a fairer source
The victims of Shield and First Guardian aren’t financial experts. They’re retirees, pre-retirees, and families who trusted the system. Many don’t even know yet that they’ve been impacted—despite the adviser community already bracing for the fallout.
These people deserve compassion, restitution, and a functioning system that makes them whole. But right now, the CSLR creates a double injustice: it fails victims through underfunding and long delays, while financially punishing unrelated advisers.
Many of these families are now organising independently, raising money to litigate as a group. They’re asking government and industry to co-fund that action. This is not how the system should work.
3. A better model: A universal superannuation levy
Instead of targeting advisers and licensees, let’s create a sustainable, system-wide safety net: a levy on all superannuation balances. A superannuation insurance pool.
A 0.02% levy on the $4 trillion super system would raise $800 million—enough to fully compensate victims of First Guardian and likely Shield as well.
An enduring pool (a superannuation reserve) of $1 billion should be maintained.
For an average member with $100,000, the cost is just $20 per year.
The average return on super was 13.4% in the year to September 2024, according to APRA. If it was 13.38% but victims of one of the largest failures were looked after, who would complain?
This model:
- Spreads costs equitably across all superannuation members;
- Recognises that all Australians benefit from tax-advantaged super returns;
- Enables faster access to compensation—no two-year wait;
- Allows room for partial compensation where investors took on clear risk;
- Preserves the viability of the financial advice profession, and with it, access to personal financial advice.
This approach doesn’t need to be a ‘last resort’—it should be a first response for those facing financial harm from fraud, misrepresentation, or systemic failures.
Right now, victims are being asked to roll the dice with the current complaint position being:
- Will AFCA accept their complaint?
- Did they name the right entity?
- Was it lodged in time?
They shouldn’t have to find out, years later, that they missed the window. They shouldn’t be forced to crowdfund litigation for justice.
Time for industry to stand up
The CSLR, as it stands, is driving good advisers out of the industry—and when the Shield and First Guardian bills hit, many more will follow.
A small, universal levy on all superannuation accounts, is fairer, faster, and better aligned with the core principle of superannuation: protecting Australians' retirement savings.
Super enjoys massive tax concessions. Is it really outrageous to use a tiny fraction of that to protect Australians from theft, fraud, and maladministration?
This is an industry-defining issue. Advisers and licensees must stop fighting, start working together, and stop prosecuting an argument for the “perfect financial advice model”.
The current system is unsustainable, and a fair solution is not that difficult to design.
Michael Baragwanath is Managing Director of Clime Investment Management Limited, a sponsor of Firstlinks. The information contained in this article is of a general nature only. The author has not taken into account the goals, objectives, or personal circumstances of any person (and is current as at the date of publishing).
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