Mulino brings New Class of Advisers to life, guarantees fairer CSLR funding

Assistant treasurer Daniel Mulino will forge ahead with the New Class of Advisers (NCAs) as part of highly anticipated Delivering Better Financial Outcomes (DBFO) reforms and laid out a blueprint of how the Compensation Scheme of Last Resort (CSLR) will be fairer for financial advisers.

The NCAs will be limited to APRA-regulated superannuation funds and life insurers and supported by "strong safeguards against vertical integration through prohibitions on commissions, bonuses and volume-based payments," he told the National Press Club today.

"We will review the scope of the New Class of Adviser in three years to determine how it is going and whether we should expand it further."

The government will also reform the best interests duty to support the provision of scaled advice and confirmed a review of the Financial Adviser Code of Ethics.

The minister said the reforms were designed to address the reality that millions of Australians need assistance navigating retirement without facing prohibitive advice costs.

Mulino will also legislate an obligation for superannuation trustees to implement and enforce advice fee deduction caps for members.

He acknowledged concerns raised by regulators about poor conduct and consumer harm arising from inappropriate advice practices.

Referencing ASIC's recent work on advice fee deductions, Mulino said the regulator had uncovered serious governance failures, including excessive fees charged to consumers with low account balances for switching-related advice.

"ASIC's ongoing work, and our reforms to SMSF reporting, will dovetail to provide better visibility of advice fee deductions across the ecosystem, and greater assurance that members balances are not being eroded by unreasonable and inappropriate deductions," he said.

Fairer funding for CSLR, SMSFs roped in

To guarantee the sustainability of the CSLR, Mulino will limit compensation to actual investment losses rather than hypothetical losses for applications made to AFCA after June 30 of next year.

The government will apply the waterfall model outlined in a recent consultation to the $170.3 million special levy attributed to the financial advice subsector for the 2026-27 financial year.

"But applying the waterfall model doesn't mean that sub-sectors are automatically going to pay their maximum cap," he said.

"The legislation requires me to consider the viability of affected sectors and the broader interests of the financial system. That is exactly what Treasury is analysing now, in consultation with stakeholders, before I make any final decision."

Singling out the financial adviser sector, Mulino said he recognises it is made up largely of small businesses and knows "the immense value they provide to Australians" and heard the concerns they have raised throughout this process.

Mulino noted he is "committed to working with the sector to ensure we arrive at an outcome that is sustainable, proportionate and fit for purpose."

Incidentally, the SMSF sector can expect to contribute to the levy going forward.

"This is a balanced approach under which it is estimated that individual SMSFs are likely to contribute no more than $20 per leviable period, which an overall sector levy scaled according to the relative size of SMSF population assets compared to APRA-regulated sector assets," he said.

"Alternative models, including excluding SMSFs from the scheme altogether, would have created significant gaps in consumer protection while adding complexity and administrative costs.

"We will strengthen accountability, remove practices that serve no useful purpose, formalise standards that responsible actors already have in place, and support more efficient allocation of capital across the economy through improving market integrity and consumer confidence."

Furthermore, Mulino said the CSLR was not designed to absorb the costs associated with large scale investment losses linked to personal advice failures and that "the quantum of those losses is simply too large."

"We are ensuring that compensation is delivered earlier and by parties more directly connected to the conduct that caused the harm, and that is the purpose of the trustee remediation reforms I announced earlier," he said.

"But even with stronger consumer protections and stronger remediation arrangements, there will still be circumstances where consumers need a genuine safety net."

The proposed changes comprise two out of three major reforms Labor hopes will better protect consumers via the superannuation system and financial advice.