The Compensation Scheme mess no one warned us about
What is the Compensation Scheme of Last Resort (CSLR)?
The Compensation Scheme of Last Resort (CSLR) was rolled out in April 2024 after years of recommendations from the Banking Royal Commission. It’s designed to compensate clients up to $150,000 when a financial firm collapses and can’t pay after losing a complaint through the Australian Financial Complaints Authority (AFCA).
In theory, it sounds fair. If you’ve been burned by bad advice, you’re not left completely empty-handed. But in practice? The scheme has sparked frustration across the industry, and not just with advisers footing the bill.
“This compensation scheme of last resort is difficult, complex and has got many layers like a good onion… we’re gonna try and peel back this onion layer by layer and try and understand what it means.”
Why the CSLR levy is hitting advisers and clients
The CSLR isn’t funded by government, but by levies on financial advisers even those who’ve done nothing wrong.
The first levy round totalled $18.5 million, followed by another $2.4 million (CSLR, 2024). And projections suggest annual costs could climb to $67 million, which translates to around $6,600 per adviser on top of existing ASIC levies (IFA, 2025).
For small advice firms, that’s not pocket change and costs are usually passed down to clients, making advice less affordable.
“The CSLR really is someone who goes into a bank and robs a bank and then the bank says for us to be made whole, anyone who’s ever walked into this bank in the past needs to pay us back this money. And the government going ‘yeah, you know what, that’s good, let’s do that.”
Case study: the Dixon Advisory collapse
The collapse of Dixon Advisory, a subsidiary of Evans & Partners, was one of the main drivers behind the CSLR. Dixon steered thousands of clients into underperforming US property funds, leaving average losses of hundreds of millions total, some clients out $100k+ (Senate Inquiry, 2025).
When complaints started rolling in, Dixon went into liquidation, effectively dodging direct responsibility. The fallout has been absorbed into the CSLR, leaving other advisers to cover the bill for misconduct they had no part in.
“It shows a bit of a systemic situation where, if you do have a situation, someone’s coming after your licensee… OK goodbye licensee, hello new people 2.0.”
Key problems with the CSLR
The CSLR doesn’t just highlight the cracks in financial advice regulation. It widens them.
1.Licensee loopholes: Firms can shut down, re-emerge under a new licence, and avoid direct accountability.
“With Dixon highlighting you can just close your doors and start again, having it come through a licensee, have that licensee close and then open a new licensee, the financial effect hasn’t directly hit them.”
2. AFCA’s calculation methods: There are inconsistencies in how compensation amounts are assessed.
“t’s just really interesting how the compensation scheme has been set up and AFCA’s way of calculating it… there’s a lot of flaws in this area that it’s hard to imagine happening in any other industry.”
3. Costs pushing clients away from advice: Median fees for financial advice have already risen to $4,668, an 18% increase since 2024 (IFA, 2025). Adding CSLR levies makes affordability worse at a time when younger Australians need advice most.
What the CSLR means for everyday Australians
At its core, the CSLR was meant to restore trust in the financial advice industry. But the reality is more complicated. Instead of targeting the bad actors, the costs are spread across every adviser and, ultimately, every client.
“We’re not journalists… I actually prepared more than I’ve ever prepared for a decade and we’re still very confused with what the heck is going on.”
For clients, the takeaway is this: while the CSLR may provide some safety net, it’s no guarantee of full compensation. And rising advice costs mean many Australians might struggle to access quality financial guidance at all.
The bottom line
The CSLR is an important reminder that financial safety nets aren’t perfect. While it offers limited protection for clients when firms collapse, it comes at the expense of advisers and, by extension, their clients.
Reform is needed to ensure accountability lands where it belongs — with the firms and individuals who caused the damage. Until then, Australians should know that advice is becoming more expensive, not necessarily because of their adviser, but because of systemic flaws that still haven’t been fixed.
Resources
Compensation Scheme of Last Resort (CSLR). Levy estimates and scheme updates.
IFA (2025). What are the possible outcomes for the CSLR special levy?
IFA (2025). Advisers didn’t look the other way, but they’ll pay for it anyway
Senate Inquiry (2025). Dixon Advisory collapse proceedings.
ASIC (2024). ASIC proceedings against Dixon Advisory director dismissed