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We need a better scheme to help superannuation victims

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).

For more articles and papers from Clime, click here.

 

22 Comments
Bruce Keenan
September 18, 2025

Sadly most of the responses appear to be 'band aid' fixes. WHY?, firstly if you buy a new vehicle and it has a faulty braking or steering system, who is responsible under Australian law? Is it the vehicle salesman, the vehicle dealership or the vehicle manufacturer? Similarly, is the dispensing chemist liable, the chemist chain or the drug company liable for a product that causes serious/fatal health issues?

Of course it is the manufacturer who is liable, but in the existing financial investing market environment the financial advisor is wrongly liable. WHY? ASIC appeared to have failed in its duty under Australian Standards AS 3806-2006 and AS/ANS 4360-2004 on risk management systems and compliance as the national Regulator to have the industry research houses to adopt standardised benchmarks and methodology for retail users/investors (and IMPORTANTLY financial advisers themselves) so as to compare 'apples' with 'apples' with some degree of accuracy.

At present, the greater number of research houses adopt a five category system, whereas others use a seven category system. ASIC even referred to a four category system. Adding to this confusion, there are even different names for the same category such as 'moderate' and 'balanced' supposedly meaning roughly the same profile. On top of that, there is as much as 30% difference in the percentages recommended for specific similar profile/s. So how can an Adviser compare 'apples' with 'apples', let alone any retail investor/user come to grips with this complexity. Logically they cannot.

In about January 2012, I provided a submission on behalf of a professional compliance group to ASIC comments on its 'Rationale140 at E1' that outlined the serious existing discrepancies. The submission suggested, through consultation, providing guidance tom industry research house and rating agencies to adopt standardised benchmarks. They were not adopted.

It is a pity that the Industry does not stand firm and united on this issue, and with the help of the major PI Insurers, demand that standardised benchmarks be mandated by ASIC. The PI Insurers have a significant stake in this issue yet seem to not understand the problem and/or the causes that affect their bottom line profitability.

Am I qualified to provide such a view? I am a former Senior Investigator for ASIC with over 50 year in the various financial market environment/industries and have experienced quite a number of national/global financial meltdowns.

Trevor
September 20, 2025

ASIC is going after the trustee in connection with the First Guardian and Shield episode I read. Do you have a view on that?

Dudley
September 16, 2025


"super funds pay a levy"
"had to work until 70"

Full Age Pension, preferably with full threshold Assessable Assets ($481,500) kept outside super, is the best salve for super victims.

Tax free, inflation free, effort free, idiot proof:
= (26 * 1732.2) + PMT( 2.75%, (97 - 67), -481500, 0)
= $68,815.80 / y

harry medlicott
September 16, 2025

Harry M.
The suggestion that super funds pay a levy which would provide the funds To compensate losses such as those recently highlighted particularly as compensation might take a couple of years to progress deserves thought. The suggestion seems to take the liability to provide funds away from investment advisors to be paid for by superannuation funds. Sounds great for advisors, their risk profile is greatly reduced and probably their indemnity insurance costs. Perhaps the better idea would be a combination of a smaller superfund levy and one from investment advisors which might well be less than indemnity insurance premium savings. The 90% cap on payments is certainly worthwhile as it gives contributors a good reason to be careful. The conclusion that the current scheme is unfair and unworkable in practice is beyond doubt.

Lyn
September 15, 2025

This article & comments (& LIC article) churns Storm Financial debacle in 2009 and consequences to a friend of $400,000. He had some financial literacy and not reckless. Asked me to attend a presentation but I knew opinion prior: I trust noone to manage my capital. Thought projected outcomes too optimistic so said think deeply and at least spread the capital. His accountant retired but kept a few clients, he consulted but no opinion as 'out of the game now'. Friend proceeded anyway. He had to work until 70, died at 72 of heart attack. The stress? Possibly. The court cases years after.
Comments re education, insurance, levies etc but 16yrs after Storm what was learnt by industry and customers? Roland's & Stephen's comments pertinent, people learn by experience, there can't always be compensation for poor decisions. Recent situation should encourage saving outside Super spreading risk and applying personal control and view tax paid on those earnings as 'safety measure' rather than always be seeking tax concession from extra Super contributions putting more capital under others' control which could hold future risk. Tax paid outside super seems small price to pay for personal control of some capital.

Retired & Scared
September 15, 2025

As a retiree I was not aware of CSLR. I learned about Shield and First Guardian from media and it is a very scary how little help is available. For that reason I believe that there is a need for better protection of superannuation and I like the concept of “insurance”. However this protection will be paid by retirees and employees and I am not sure what impact if any the introduction of such insurance will have on the cost of obtaining financial advice. The proposed solution is retrospective and it offers some help after a damage is done. From my point of view, it is more important to introduce a more effective way of preventing such situation from happening. The recovery of any money is time consuming and as I understand it is limited to the assets owned by the person found guilty. From the victim point it can be too little too late with any institutions/ parties that advice, manage or protect running for cover. I believe the effort should be directed on prevention. For example financial planning advice includes the strategies to protect the assets against any claims so it looks to me that financial planners also play a role in protecting the guilty party. As an alternative should there be an ongoing levy imposed on any structure that enables the avoidance of financial responsibilities. There should be a price for such avoidance and it should not be paid by people like me

Peter B
September 15, 2025

ASIC Information Sheet 274 (INFO 274) is a good starting point for risk assessment. Those setting up an SMSF accept and are advised they have greater responsibility for failures within their SMSF than APRA regulated fund members. SMSF's bearer greater risk, which advisers are required to detail and should wear the insurable and non-insurable costs that may arise. This ASIC defined more capable SMSF group can fund their own CSLR solution.
A superannuation industry wide CSLR solution creates a moral hazard where SMSF's would be partly exempted from their fair share of costs for their failures in decision, selection and risk management by drawing funds from APRA regulated funds that invest more heavily in fraud and loss control.

Linda
September 15, 2025

Should not forget that Industry Funds have had legal claims against them for defaulting young members into inappropriate Life Insurance; been highlighted for slow payouts of deceased members and relentlessly advertise using members funds that are reserved.

Best if all super fund members, APRA or non APRA regulated, contribute to a reserve, essentially a insurance scheme, that rectifies wrongs quickly before recompense is paid by the wrongdoers.

Michael Baragwanath
September 15, 2025

I think we need to separate bad investments from fraud and theft. SMSF trustees do take on more risk. The compensation scheme I propose is for losses caused by clear breaches of law not just "a bad deal".
I think you can address the moral hazard with proportionality and variable costs. IE charge SMSF trustees a higher levy and or pay a proportion of losses rather than asking SMSF trustees to "figure out their own solution".

Roland Geitenbeek
September 14, 2025

Financial Education is the long term answer, starting at primary school. Than, a very light touch from government and allow people to suffer the consequences of poor decisions which will, long term, avoid many of these problems. Unfortunately, every time anything goes wrong, the alarm is raised with the demand for protection and compensation from others (to wit, taxation) to bail them out. When will people understand life is not fair and there are consequences for a failure to perform perfunctory checks or obtain proper independent advice firm firms or persons carrying good liability insurance.

Linda
September 14, 2025

Good idea Michael and worthy of a full review by regulatory authorities. But let’s not hold our breath as the regulators work at snails pace and seem more focussed on penalising culprits ( which is needed ) rather than solving financial problems and getting quick compensation or rectification for aggrieved investors

The proposed levy, covering losses caused by impropriety rather than market movements, is justifiable in this case.

It is an insurance policy for all superannuation accounts against a specific risk - improper behaviour. A industry reserve is both worthy and necessary.

The Shield and First Guardian losses are affecting a range of people in different stages of accumulation and pension. The sooner their accounts are made good then the potential growing losses ( compounding returns on capital) and mental stress is alleviated.

Rather than AFCA and the courts working their way through claims and cross claims by licensors, licensees, trustees, platforms, fund managers, fund raters and insurers - the regulators should seek payments into the compensation scheme as a matter of urgency.

There are degrees of culpability in the current cases and commonsense suggests the fund managers are the ones who perpetuated the worst offence with all others involved negligent to different degrees.

Guarantees come with restrictions
September 14, 2025

I have only a general knowledge of the recently failed investment schemes but I wonder if Corporate Governance was at the core of the failures. Financial Planners are not able to assess the Corporate Governance of a fund. They rely on Research Houses to perform that task. So maybe the problem is that the acceptable Research Rating for superannuation investments is too low. The solution would be to design, and set, a high rating standard for superannuation investments. Only those investments that hold a high rating receive the guarantee and hopefully no levies are required in the future.

Vee
September 13, 2025

Why is due diligence out the window and why are perpetrators never properly apprehended and made to give recompense and serve punishment?
There is always risk with investing. Higher returns are higher for a reason.
Our nanny state never seems to catch the bad guys, makes life more difficult for those that try to do the right thing, and always places the blame on someone else, with nnocent people to having to pick up the pieces.

Stephen
September 12, 2025

The problem with open ended compensation is that it doesn’t deal with the real reasons for inappropriate advice - greed and stupidity on the part of advisors and clients. A previous comment suggested a maximum of 90 per cent compensation. This recognises that in a system driven by self choice the individual investor must take some responsibility for their own decisions, no matter how bad the advice. Personally I think any compensation scheme should make the individual bear some of the loss and also be dollar capped. An open ended scheme will encourage more poor advice and idiotic levels of risk taking by individuals.

Michael Baragwanath
September 15, 2025

That's a perfectly reasonable suggestion. Let's agree the scheme is 90% of capital (no interest/but for nonsense) capped at AFSA's comfortable retirement estimate.

Lock it in Eddy.

Ron herron
September 12, 2025

We don`t totally agree with your statement about financial advisors being not responsible for their advice. How we see it is that a person goes to a financial advisor for guidance in a matter they, themselves are not skilled enough in, as a result the advisor "sells" his knowledge to the client for a fee, thereby a responsibility of trust and fairness or contract is entered into with the client. Now, if that advice turns out not to be of a benefit to the clients, the client has no one to turn to for compensation other than his financial advisor.
But the controlling factor of this contract is that the poor mug client is not in the financial industry and has no way of knowing if matters are going lopsided and he is depending on his advisor to keep him up to date on these sort of matters and institute changes for his client as necessary as he is receiving an ongoing fee to keep the client up to date.
In our situation experienced, the advisor being aware of a future calamity about to happen, did not keep us informed. This story happened quite a few years ago and no compensation was forthcoming from any source those days other than Paul Keating putting pressure on the players in the superannuation industry at the time and a small portion of our funds was paid. At least there is somebody or group accountable now and if you are paid to perform a duty and fail, it is up to the advisor to have appropriate insurance to cover these events. But it does sound a bit long for this compensation to actually happen.

Frank Sciarrone
September 11, 2025

Hi Michael as Chairman of a reputable advice firm who has never had a complaint lodged with any regulatory body, I agree fully with your thesis. Only yesterday we were discussing the matter and i suggested a similar solution with a slight twist to yours. Why not add a 2-basis point levy to the management fee of every managed investment scheme/fund offered in the superannuation environment. Why not place the burden on the product manufacturers where in many cases the fraud or misconduct occurs and not on superannuants. You are 100% correct in noting the CSLR is an ill-conceived scheme, which in my opinion was unwittingly modelled on the APRA Super Fund Levy but instead of being applied to the wider industry, it has been applied to a narrow set of participants. Its time all advisory firms made a stand for a fair and equitable scheme which is funded by the industry as a whole. I will refrain from making comments about the lack of action by the regulators in this instance but fair to say I share your concerns.

Cam
September 12, 2025

I've always thought compensation should only cover say 90% of any loss, otherwise people can pick high risk investments knowing they get covered if it goes bust. Moral hazzard.
If a levy on financial advisers is wrong as they do not control product design, management, or risk oversight, surely a levy on all superannuants is wrong for the same reason.
The overall approach though seems flawed for the same reason building insurance in NSW is flawed. The bad actors don't pay anything and often walk away scot free. Bigger fines, recovery of monies paid into trusts, to spouses, etc and long gaol sentences will discourage some, help recover more funds and be some consolation for victims. As noted some people die due to stress, even if they end up with all their money back a couple of years later, so this type of theft should be considered at least manslaughter.

john
September 12, 2025

Of course all of this still lets the bad eggs off free. Whilst there is an insurance scheme like CSLR it relieves those bad eggs so they get off scot free. What has happened to the managers of the likes of Dixon ?

Greg E
September 11, 2025

I like the simplicity and the fairness of the proposed solution. I was once an adviser with my own AFSL. Never had a claim or even a complaint. Kept the advice simple and safe - like most advisers. 15 years of reactionary ridiculous reform tells us that governments don't understand that you will always struggle to get universal honesty and integrity all the time by legislation. You might weed out a few bad eggs but there will always be someone out there who will do the wrong thing. Higher education standards are good but look at the state the industry in now in. I could see this happening years ago. Glad I'm now out

Old super hand
September 11, 2025

There is no recorded case of an APRA regulated fund trustee not paying a compensation claim made through AFCA and there also is a compensation arrangement in place if fraud or theft happens in an APRA regulated fund. So, how about as an alternative there be an 0.08% levy on the trillion dollar SMSF sector? Or a levy on the assets of managed funds outside of superannuation (where there have been a variety of cases where investors have lost money due to fraud or theft).

Peter Knight
September 11, 2025

Instead of the Federal Government concentrating on increasing taxes in Superannuation, they should instead be focusing on the shortcomings of the woefully inadequate CSLR.

 

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