Super scams First Guardian, Shield cause compensation cost blowout

A government scheme that provides compensation for victims of financial misconduct, including Australians who lost their retirement savings in the First Guardian and Shield super disasters, faces a funding shortfall of $170 million.

The Compensation Scheme of Last Resort (CSLR) was introduced after the banking royal commission and is designed to help consumers recover money when a financial firm has become insolvent or refuses to pay determinations made by the Australian Financial Complaints Authority (AFCA).

But the scheme is capped at $150,000 per claim and funding for it has fallen well short of what is needed to cover victims in the recent high-profile financial collapses of First Guardian and Shield, as well as the previous Dixon Advisory collapse.

New CSLR figures reveal that the government needs to raise $190.3 million to fund all financial advice claims.

The CSLR currently only has about $20 million from levies corporate watchdog ASIC has raised, and needs an additional $170 million to meet the shortfall, largely driven by the rise in claims at AFCA and the First Guardian Shield collapses.

These funds will facilitate the CSLR processing of 1,567 consumer claims, up from 912 in the initial levy estimate.

CSLR chief executive David Berry said the initial financial year (FY) 2027 levy estimate published in November 2025 had excluded any impacts of Shield and First Guardian Master Funds due to limited available information.

"Since November 2025, details have emerged relating to the potential size and scale of compensation required from the CSLR in relation to Shield and First Guardian Master Fund failures," he said.

"Consequently, the revised estimate now incorporates an allowance for claims relating to these products."

Assistant Treasurer Daniel Mulino has already announced Treasury consultation on how to broaden the scope of the levies and who in the industry must pay them.

Under changes being considered, financial advisers and APRA-regulated super funds would be part of a bigger pool that would be billed to fund the $170.3 million shortfall.

Three major financial collapses drive shortfall

The big jump in funds required is largely because of the final cohort of claims related to Dixon Advisory, following faster-than-anticipated complaint processing by AFCA.

Dixon Advisory was one of Australia's largest financial advice and self-managed super fund (SMSF) providers until it collapsed into voluntary administration in 2022 and was subsequently liquidated.

It was fined $7.2 million by the Federal Court for breaching best interest rules in proceedings launched by ASIC.

The shortfall is also largely due to the first tranche of claims associated with the Shield and First Guardian collapses, which caused about 11,800 investors to lose more than $1 billion in retirement savings.

About 5,800 people invested $480 million of their retirement savings into Shield and about 6,000 invested about $446 million into First Guardian.

Some Shield investors have already been awarded compensation from superannuation trustees Macquarie and Netwealth, which ran platforms that housed the investments.

Of the total $480 million worth of investments made in Shield, Macquarie reimbursed $321 million to 3,000 investors.

Of the $446 million of investments made into First Guardian, Netwealth reimbursed about $100 million to about 1,000 investors.

The report on the CSLR's funding shortfall for FY 2027, tabled in parliament, said the estimated cost from the more than 3,000 claims lodged with AFCA so far was about $200 million, but that if "every affected investor were CSLR-eligible, and were to be compensated, the total First Guardian/Shield claims payable by CSLR could be in the order of $900 million".

More consumers fall victim

Other smaller claims that could fall under the CSLR are from consumers who lost out because of Walker Stores-operated Snaffle — an online retailer offering household goods, electronics, furniture and appliances through instalment-based finance plans — which ASIC sued in 2025.

In May, the Federal Court ordered a $33.5 million penalty against Walker Stores.

It also includes claims related to the collapse of financial services provider Remi Capital, which liquidators have reported owes more than $124 million in total debts to investors and lenders.

Mr Berry noted that the CSLR has now been in operation for two years and has seen more consumers fall victim to financial misconduct.

Many of the consumers who are waiting to be compensated were lured into the schemes because they were looking to build their retirement savings. The trend of super switching by investors who may not fully understand the risks is something that has regulators, including corporate watchdog ASIC, worried.

"Our experience indicates that the overwhelming majority of claimants believed they were taking a prudent and positive step by placing trust in a professional to provide expert advice in a complex financial system," Mr Berry said.

"Many are now left feeling as though this trust was misplaced."

Mr Berry said the CSLR had to date paid more than $200 million in compensation to more than 1,600 victims of financial misconduct.

"The majority of compensation paid represents money lost from defective personal financial advice and, in many cases, the compensation paid provides for only a partial recovery of hard-earned savings," he said.

"Unfortunately, we see the disproportionately negative impact of individuals within the financial services sector who have done the wrong thing."

He said that impact weighed on the whole sector "and comes at the expense of the lasting emotional, physical and financial wellbeing of individuals working hard to save for retirement".

Legal action halts enforcement of some AFCA determinations

Many First Guardian investors are still waiting to be paid back their investments into the fund from successful determinations by AFCA.

Some payouts have been delayed because one of the companies that licences financial advisers that gave investors advice to pump their retirement savings into the First Guardian fund has now lodged a legal challenge against AFCA's determinations in favour of investors.

In late February, InterPrac Financial Planning filed the lawsuit in the Federal Court.

InterPrac has named Melinda Kee, a former client of the firm who was advised to invest in First Guardian and lost hundreds of thousands of dollars as a result, as a second defendant in its lawsuit against the complaints authority.

Ms Kee, who leads investor advocacy group SOS Save Our Super, received a determination from AFCA in her favour.

Under that determination, InterPrac was ordered to pay her $368,093.11 plus interest within 30 days of her acceptance, which occurred on April 10.

Instead of being paid, Ms Kee was instead named as a defendant in InterPrac's case against AFCA just three days before the May 10 deadline.

The lawsuit now delays Ms Kee from enforcing her AFCA determinations.

Ms Kee has been advocating for a "pay now, recover later" model, saying investors should not be the ones left waiting years for justice.

"Where there has been clear regulatory and systemic failure, victims should be compensated promptly," she said.

"Australians who have lost their retirement savings should not bear the financial and emotional burden of delays caused by failures within the very system they were required to trust."

AFCA continues investigations

Meanwhile, AFCA has paused completing InterPrac determinations while it manages the court proceedings.

AFCA announced in May that it would continue to accept InterPrac complaints and conduct investigations, but would stop making formal determinations while the court proceedings were underway.

An AFCA spokeswoman told ABC News that large-scale financial collapses had generated significant numbers of complaints to AFCA.

"We have seen several major collapses in recent years, each generating large volumes of complaints and affecting thousands of consumers," she said.

She said AFCA had received 3,343 complaints about Shield and First Guardian. It had issued 89 decisions, including six lead decisions, and had 644 simultaneous investigations underway.

"Beyond just financial advice complaints, in the first quarter of this year alone, from January to March, AFCA has received more than 30,000 complaints across all products — a 23 per cent increase on the same period last year," she said.

The spokeswoman said consumers who had experienced poor financial advice were often navigating complex and highly stressful personal circumstances.

She said while AFCA wanted to progress matters quickly, it needed to thoroughly investigate the circumstances of each matter, which could take time.