Industry Grapples with Compensation Crisis as Regulators Signal Major Simplification Push
For the week of 4 September to 10 September 2025
This week, our industry found itself at a critical juncture, caught between the costly legacy of past failures and the promise of a simpler future. The financial and ethical fallout from the collapse of the Shield Master Fund and First Guardian dominated headlines, sparking an intense, industry-wide debate over the sustainability of the Compensation Scheme of Last Resort (CSLR). The sheer scale of the potential claims has forced a confrontation over who should bear the burden, with the advice profession warning it cannot be left to carry the cost alone. Against this backdrop of immediate crisis, a counter-narrative emerged from the regulators themselves. Both ASIC and APRA signalled a clear intent to tackle the industry’s crushing complexity, acknowledging that the current web of regulations is unwieldy and pledging a significant overhaul of guidance. This has created a palpable tension: while executives grapple with the existential threat of spiralling compensation levies, they are also being asked to prepare for a wave of simplification that could fundamentally reshape their operating environment.
The Regulatory Environment
A clear and concerted push for regulatory simplification emerged as the week's defining theme, even as the industry grappled with the complex fallout of major collapses. ASIC Chair Joe Longo set the tone, frankly admitting that historically, "we don't do simplification well," and flagging a major overhaul of regulatory guidance to reduce complexity. This sentiment was echoed in a joint announcement where ASIC and APRA outlined opportunities for regulatory reform to ease the burden on businesses. The government added legislative weight to this push, with reforms to modernise Australia’s payments system passing the Senate, a move aimed at reducing red tape and fostering competition.
This forward-looking agenda was starkly contrasted by the ongoing and increasingly fraught debate over the Compensation Scheme of Last Resort (CSLR). The scheme's viability is being tested by the Dixon Advice collapse alone, without considering the combination of UCG, Shield Master Fund, and First Guardian, with the industry warning that the advice profession should not be left carrying the burden for the failures. In a sign of the immense pressure on the scheme, the CSLR’s own chief executive advocated for a reduced claim cap for major collapse events, implicitly acknowledging the current model may be unsustainable.
Meanwhile, ASIC continued its core functions, releasing the results for the August 2025 financial adviser exam. The results showed a 69% pass rate, an improvement from previous sittings, although calls persist for greater transparency from the regulator on how benchmarks are set. In a separate development, the Shadow Financial Services Minister accused the government of "brazenly burying" a key report into Managed Investment Schemes, suggesting that political scrutiny over the regulatory framework for investment products is set to intensify.
The Economy, Investments & Platforms
The broader economic picture provided a surprisingly firm footing this week, with the Australian economy growing stronger than expected in the June quarter. This stronger GDP rebound, however, has dimmed prospects for an RBA rate cut, with the central bank now facing a tougher path as it balances growth with inflation concerns. RBA Governor Michele Bullock noted the bank is alert to the impact of technology on the economy, signalling that productivity gains from new technologies, such as AI, are a key variable in future policy settings.
In corporate news, technology provider Iress confirmed the appointment of a new chief executive after announcing its previous CEO was exiting the firm. The leadership change comes at a pivotal time for the wealth technology sector. In a sign of the shifting strategic landscape, the CEO of platform provider netwealth noted that two big trends are shaping his worldview: the shift to private ownership of advice licensees and the increasing use of private market assets.
Investors and advisers continue to focus on digital assets, with a senior executive from cryptocurrency exchange Binance stating that investors want regulatory clarity before committing further capital. This comes as market analysis suggests that tokenisation is tipped to transform markets, though significant adoption hurdles remain. On the institutional front, the Future Fund delivered an impressive 12.2% return for FY25, driven by strong markets and strategic bets, and has flagged an expansion of its active equity program.
The Superannuation & Retirement Landscape
The superannuation sector found itself at the centre of the storm surrounding the collapse of the Shield and First Guardian managed investment schemes, with significant pressure mounting on trustees to contribute to a solution. Licensee group Sequoia publicly floated the idea that a super fund safety net could offer a path to recovery for victims. This was followed by calls from fellow licensee Interprac for super funds to use their operational risk reserves to help remediate affected members. These proposals place trustees in a difficult position, balancing their duties to their broader membership with calls to assist victims of failures elsewhere in the system.
Away from the compensation crisis, cybersecurity remains a paramount concern for the industry. In a sign of the sector’s coordinated response, super funds united for a cybersecurity drill to test their resilience against potential attacks. This comes as APRA continues to press funds to bolster their cyber preparedness, making it clear that protecting member data is a top supervisory priority.
On the policy front, the debate over the proposed Division 296 tax on balances over $3 million continues. One Coalition MP has argued that the Government has retreated from the "flawed" super tax, while other analyses suggest that pushback from APRA-regulated funds is reportedly driving Labor to rethink the tax's mechanics. In a separate move, Shadow Minister for Finance Jane Hume introduced a bill aimed at allowing tax-free super splitting for couples to help tackle the gender gap in retirement savings and mostly negate the impact of the Division 296 tax.
In platform and product news, Aware Super launched new features for its adviser portal, a move designed to strengthen relationships with the advice community. This comes as APRA's latest quarterly data highlights growth in retirement and platform super products, showing a clear shift in the market.
Life Insurance & Client Protection
The life insurance sector is focused on growing the pipeline of new talent and improving community engagement. The Council of Australian Life Insurers (CALI) has opened applications for its ‘Recalibrate’ grant program, which provides funding to help boost the number of women in risk advice roles. This initiative is designed to address the shortage of specialist risk advisers and improve the diversity of the profession.
On the consumer front, major insurers are investing in brand visibility and public awareness. AIA has launched a new campaign that will be featured across various media platforms. Similarly, life insurer Acenda has launched a nationwide brand campaign to empower Australians to "take life on". These campaigns aim to lift the profile of life insurance and encourage more Australians to consider their protection needs.
Meanwhile, the industry continues to innovate in its operational processes. One report highlighted how claims management firm Gallagher Bassett is transforming its claims handling with AI, suggesting that technology will play an increasingly important role in improving efficiency and client outcomes. In a key regulatory development, AFCA has launched a joint consultation on its approaches to life insurance, aiming to align its processes with those outlined in the Life Insurance Code of Practice.
Advisers, Advice Practices and Clients
For the financial advice profession, the week was unequivocally dominated by the financial and reputational fallout from the collapses of Shield and First Guardian. The central issue is the impending CSLR levy required to compensate victims, with multiple industry bodies arguing that the costs need reform, not an extra levy. The core of the argument is that the broader profession, which is already funding the scheme, cannot be expected to shoulder the entire cost of large-scale failures. There are now active discussions about activating the Operational Risk Financial Reserves (ORFR), a regulatory protection mechanism tied to superannuation funds, as a potential path to remediation.
On the one hand, the pressure on the profession is reflected in the number of advisers, which remains 13 fewer than on 1 July 2024; however, it is not all doom and gloom, with 369 advisers having been added to the FAR so far this financial year. This comes as analysis warns that the sector faces a potential loss of experience as thousands of advisers are yet to meet the new qualification standards (For those interested in further analysis on who’s at risk and who just needs to update their FAR record, contact Tony Powell).
Amidst these challenges, practices are focused on adapting to client needs and evolving their business models. One analysis highlights how global volatility is reshaping adviser-client relationships, demanding more proactive engagement. In a positive development for practice efficiency, Padua Solutions and WealthX have forged a planner-broker integration to create a more streamlined platform. The importance of getting the fundamentals right was also stressed, with one successful practice owner noting that good foundations help weather the storm when creating a new practice.
In the Background: Key Financial Services Organisation Movements
Several significant leadership and personnel changes were announced this week. In a major move, Iress confirmed its new chief executive following the departure of its previous leader. In funds management, Lazard Asset Management appointed a new chief executive, and Northern Trust Asset Management named a new president. In the superannuation sector, UniSuper hired a new manager for investment solutions from Lonsec, and Cbus welcomed a new head of risk transformation. Other notable appointments include Binance naming a new head of APAC and Igneo Infrastructure Partners expanding its leadership team.
Key Takeaways for Your Sector
For Superannuation Executives: The Shield/First Guardian fallout has placed trustee obligations under a microscope. Expect continued pressure and proposals for super funds to contribute to remediation efforts via operational risk reserves. This presents a significant strategic and fiduciary challenge. On the operational front, APRA's focus on cyber resilience is non-negotiable; now is the time to ensure your fund's defences are robust and tested. The ongoing debate surrounding Division 296 indicates that policy uncertainty remains a significant headwind for strategic planning.
For Life Insurance Executives: The CSLR crisis, while centred on advice and investments, could have flow-on implications for all levy payers if a special levy is required. Proactive industry initiatives, such as CALI's grants for female advisers, are crucial for rebuilding the risk advice pipeline, which is essential for the long-term health of the advised channel. Your strategic focus should include monitoring regulatory developments on compensation and investing in talent and distribution.
For Investment & Platform Executives: The promise of regulatory simplification from ASIC could be a significant tailwind, potentially reducing compliance costs and streamlining processes. The CEO transition at Iress is a critical development to monitor, given its central role in the industry's technology infrastructure. In terms of strategy, the strong performance of the Future Fund highlights the benefits of diversification and active management. At the same time, the demand for clarity on digital assets signals a significant area of future growth.
For Advice Licensee Executives: The CSLR levy is an existential business risk. The current situation is unsustainable, and your immediate priority must be engaging in the industry-wide push for a more equitable and viable solution. The dip in adviser numbers underscores the immense pressure on the profession. While the prospect of regulatory simplification is welcome, it is a long-term project. The immediate focus must be on managing the financial and operational risks stemming from the current compensation framework.
