Speaking at Momentum Media’s Election 2025 breakfast event in Sydney on Thursday morning, shadow assistant treasurer and shadow financial services minister, Luke Howarth, said he believed the Compensation Scheme of Last Resort (CSLR) has failed and argued that it should be scrapped entirely.
In his address, Howarth reiterated his belief that the CSLR was “pretty well a disaster” and said he doesn’t agree with the premise of the scheme.
While he outlined that a Coalition would reform the scheme, he told financial services delegates at the event that “I don’t even believe in the CSLR”.
In a Q&A session following his address, he said: “I think the whole thing’s stupid. It’s ridiculous … It’s not a go at anyone who’s running it … the reality is it shouldn’t have been set up to start with.
“So, we don’t want to expand it. That’s the last thing we want to do. We want to get rid of it, ultimately, and we want to reduce the cost, until we can do that, for advisers.”
At the Election 2025 event, shadow treasurer Angus Taylor confirmed that the Coalition would “fix the CSLR’s costs, making it fair and sustainable”, suggesting that the fee structures were “onerous”.
“We’re conscious of the fact that this has been a big impost on your industry,” he told advisers in the room, adding that the cost of supporting the scheme was “preventing people from serving their clients” and “making it harder”.
Delving into how the Coalition would do this, Howarth later said that – should he become financial services minister following the federal election – he would make fixing the CSLR a “top priority”.
“Earlier this year, it was revealed, as well, that financial advisers, mortgage brokers and other sectors are set to be slugged with record CSLR levies this year, and urgent action is needed to get the cost down,” he said.
He slammed the Albanese government for enabling the costs of the scheme to have “blown out $77 million for the next financial year alone”, and criticised its move to announce a review of the scheme just “weeks before the election”.
“Now it’s kicking the can down the road.”
“The advice community has been outraged by this [scheme] for at least the last two years. It’s too little, too late.”
“The only chance you’ve got to get this cleaned up is if a Coalition government is elected in its own right,” he continued.
Howarth said that if he were to be the next financial services minister, he would “look at immediately reinstating the sub-sector cap of $10 million”, which was the Coalition’s original policy.
“This will immediately halve the next industry levy… bringing it down to around $650.”
“We’ll also rule out any additional special levies for this year,” the shadow financial services minister continued.
“And importantly, we want to exclude the ‘but for’ compensation”, which he described as “a rort”, given it was compensation for people who did not necessarily have a capital loss.
“I don’t agree with the premise of the scheme. There is clearly a moral hazard,” he continued, adding that the ‘but for’ claims are seeing people reimbursed for investments that didn’t provide expected yields.
“If people invested $1 million and they get $1.2 million back, they go: ‘Oh, we should have got 1.4 [million], we want another 200 grand.’ That’s not the last resort. You know, that was not what was intended as part of Michelle Levy’s review or the [banking] royal commission. So that has to go, and then that’s what we’ll be focusing on.
“The scheme is not a last resort scheme anymore. It’s guaranteeing investment performance. It is clear that we need to limit or filter out these claims when there’s a CSLR footing the bill.”
He continued: “Advisers deserve certainty, not a government that sits on its hands and lets this spiral further and further out of control and urgent action as needed.”
Speaking at the event, Howarth said that the Coalition would also look to remove “phoenixing situations” (as seen in the Dixon Advisory Collapse) where “vertically integrated advice businesses shed liabilities for product failures”.
He also pledged to reduce “excessive administration costs” (currently about $6 million), which make up about a third of the levy.
What does the Labor want to do about the CSLR?
Outgoing Financial Services Minister, Stephen Jones, also acknowledged that the CSLR “absolutely was not designed to provide guaranteed investment opportunities when something goes wrong”.
“The very nature of investing is that sometimes things don’t go as we hope they would,” he told the Election 2025 event.
The financial services minister told delegates: “It is quite clear to me that we don’t have stable, sustainable settings of the CSLR. Reform is needed. Anything we do in this area will mean altering rates.
“While everyone in this room might be cognisant of the fact that we’ve got some problems in CSLR, I guarantee you that everyone outside this room, in the world at large, does not understand. So, a deliberative approach is necessary, and it is why I asked the Treasury to conduct a rapid review to ensure that we have a focus on these problems.
“I know a lot of people want a quick fix. I wish there was one … I think we do need to go back and have a look at it.”
However, Minister Jones said he believed that there was “no universe and no parliament” that he could imagine that “would move forward and say: ‘We shan’t have a CSLR’”.
“So, we need to ensure that moving forward, we have stable settings,” Minister Jones said.
“Once you make two decisions – the first being that we have a compensation scheme of last resort (not first resort) and that it is industry-funded. We then only have two decisions to make. What are the events that are compensated? And how do you distribute that?”
It follows earlier comments from Minister Jones that the review of the CSLR would not be expanded to include managed investment schemes (MIS).
“I want to ensure that what’s occurring doesn’t become a backdoor mechanism to drag that stuff in,” Jones said in reference to MISs last month.
“The conscious reason for doing that, it was going to add a whole bunch of risk into a compensation scheme that I don’t think is sustainably manageable.”
So interesting to see all these continued discussions about the CSLR when the fundamental problem is that it’s funding the riches made by the likes of Alan Dixon and David Evans who get off scot-free for their unethical behaviour. Laws should be in place so that these sorts of people pay for their sins.
Fantastic to hear that Howarth wants to scrap CSLR “ultimately”. Also great to hear he wants to reimpose upper limits in the short term.
But there is another way to rein in the CSLR disaster. Just remove financial advisers from AFCA’s jurisdiction. CSLR levies imposed on advisers are ultimately the outcome of AFCA’s kangaroo court process. And advisers are also subject to direct persecution by AFCA through that same dodgy process.
Financial advisers should be subject to a single disciplinary body, as recommended by Hayne in one of his rare moments of common sense. AFCA is one of many unnecessary disciplinary bodies, and it is one of the most egregiously vindicative, impartial, and burdensome. Financial advisers should be freed from AFCA’s tyranny ASAP.
Only bad advisers are afraid of AFCA. The only time a complaint against me made it to AFCA, they were very fair and found comprehensively in my favour.
Sounds like you are one of these bad actors that are part of the cslr problem.
It all looks wonderful on paper. An aspiring minister prefaces a promise with two conditions “IF I become minister”, and also the Dutton government is governing in its own right. The bookies say no on the second
On the first condition , I’ve seen this movie before. The ALA and the FPA spent money on duchessing Joe Hockey at the time of the changes in the early 2000’s only to find that Joe got a promotion weeks before the legisllation was introduced. He was observed by the late Dougal Mitchell, from the gallery, sitting on the front bench flipping through the bill and shaking his head at the late inclusions. All those bloody meetings were wasted.
There are no guarantees. Howarth may not be the Minister after the election even if Dutton wins in his own right, or more importantly, if Dutton is relying on the crossbench. And Andrew Bragg will have to be rewarded for his efforts as well.These things happen.So you have to take with a grain of salt Howarth’s apparent statement that he doesn’t believe in CLSR. The problem is Dutton was part of a government that introduced CSLR – it’s their baby, and at the end of the day there will be embarrassment in the Coalition if CSLR is abandoned entirely.As we can see with Trump, politicians don’t like admitting they stuffed up something
As to the Phoenixing surrounding E&P’s purchase of Dixon, that practice has been around for yonks and I’ve never heard a Coalition government seriously say they might want to fix the availability of that solution to business. A lot of the Coalition mates in big business, and there accountants, would not be happy, and they donate to the party
I for one will not be holding my breath. Pre-election promises are cheap. Should we ask if this particular undertaking is a “core promise”?