The scheme is working. The funding model is not.

The Compensation Scheme of Last Resort's revised estimate for 2026-27, published in July, put total levies across the scheme at $198.1 million, up from the $137.5 million first estimated in November. The financial advice subsector is attributed $190.3 million of it, driven by the tail of Dixon Advisory determinations moving through AFCA and the first claims arising from the Shield and First Guardian master fund failures.

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.

Eight days ago, at the National Press Club, Daniel Mulino told the profession how he intends to do it. The answer contains genuine structural reform, a long-sought concession, and no relief whatsoever from the invoice that is coming. All three parts deserve to be understood on their own terms.

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. Around 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.

Melinda Kee, herself a First Guardian investor, told the Professional Planner Advice Policy Summit earlier this year 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 is 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.

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, through a levy calculated on headcount rather than on risk, conduct or product exposure.

The Minister has now conceded the point

For most of this year, the evidence that the funding model was broken was that Treasury was consulting on redesigning it. As of 19 August, the evidence is stronger: the Minister has announced the redesign.

The package Mulino outlined does three things to the scheme. Compensation will be limited to actual investment losses rather than hypothetical "but for" gains, a change the FAAA has advocated for years, though it applies only to AFCA applications lodged after 30 June 2027. A "waterfall" model will govern special levies, calling first on the subsector most closely connected to the underlying harm, then on other connected subsectors, before reaching a wider funding base. And SMSFs will be drawn into that base for the first time, at an estimated $20 per fund per leviable period, with the sector's contribution scaled to its share of assets. Recovery powers against the estates of failed firms are to be expanded alongside.

Each element is a tacit admission that the original design allocated cost to the wrong parties. The waterfall, in particular, is the government accepting the profession's central argument: that a chain of failures should be funded by the chain, not by its smallest link. The SMSF Association, which fought the levy on its members and lost, has responded by asking a question worth amplifying: why record ASIC penalties, more than $800 million in recent civil outcomes, cannot be partially redirected to the scheme they exist to make unnecessary.

But the profession should read the fine print before applauding. The waterfall will be applied to the $170.3 million FY27 special levy, and applying a waterfall to a number does not make the number smaller. It redistributes it. The "but for" change, the measure that actually shrinks future claims, does not touch anything lodged before mid-2027, which is to say it does not touch Dixon, Shield or First Guardian at all. As Financial Newswire put it the morning after the speech, the measures will eventually moderate the cost of the scheme, and they do nothing about the looming invoice.

The concession is real. The relief is prospective. The bill is current.

What the levy is doing to capacity

The behavioural evidence has hardened since autumn.

The FAAA's March member survey found nine in ten advisers expect the levy to increase the cost of advice, and seven in ten expect it to reduce adviser numbers. The association's July arithmetic put total government levies at potentially more than $5,000 per adviser this year, combining the $3,037 ASIC funding levy with the CSLR annual levy and a share of the special levy, imposed on a profession averaging 2.5 advisers per practice.

Survey intentions are not outcomes, and it is worth being careful here. The register has in fact been recovering through the first two months of the financial year. But the structural point stands regardless of the weekly 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, which is the objective every other part of the government's reform agenda claims to serve.

Earlier modelling of a capped approach suggested the advice subsector would never pay more than $40 million in a single year, leaving advisers roughly $28 million better off in aggregate than the uncapped method, at an estimated $2,570 per adviser rather than roughly $4,370. The comparison remains instructive in both directions. It shows how much a sensible cap delivers. It also shows that even the improved figure is a material impost on a small practice. The Minister announced a waterfall. He did not announce a cap. That distinction is where the profession's remaining advocacy should concentrate.

The tail is longer than the current estimate

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

AFCA's data shows Shield and First Guardian complaints continuing to accumulate alongside the Dixon tail, and the gap between the roughly 3,100 complaints lodged to date and the more than 11,000 investments estimated to be affected is the size of the problem still to arrive. For context, 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 not yet made, against licensees that have not yet failed.

The "but for" change will eventually compress the value of those claims. Eventually is doing heavy lifting in that sentence. Every application lodged before 30 June 2027, and the incentive to lodge before that date is now explicit, is assessed under the old, more generous method.

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, the "but for" savings arrive at the back of the queue, and the legislation giving effect to the August announcements has not yet been introduced.

Model the cost against your own headcount rather than the published average. A headcount levy treats practices with high support-staff ratios favourably and penalises those that have added authorised representatives, a perverse outcome for a scheme meant to support advice capacity.

Redirect advocacy from the consultation to the instrument. The consultation phase is over; the Minister has announced his framework. What remains contestable is the detail: how the waterfall allocates the $170.3 million across subsectors, whether a hard cap accompanies it, and the special levy determination itself, which is made by disallowable instrument and must survive a disallowance period in Parliament. Submissions from practising advisers describing the actual effect on fees and client retention carried weight in getting the waterfall this far. The same evidence, aimed at the allocation and at the crossbench, is the profession's remaining leverage.

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.

The Minister has now conceded that in substance, from the podium of the National Press Club. What he has not done is relieve a single dollar of the FY27 bill. The remaining question is the one the August announcements left open: how many practices close in the gap between the concession and the fix.