Responding to an Association of Independently Owned Financial Professionals (AIOFP) request for advice on whether there are any potential legal challenges available to the Compensation Scheme of Last Resort (CSLR) and the financial burden the growing cost of the scheme has on advisers, King’s Counsel Bernard F Quinn said a challenge would be futile.
“In my view there is no arguable basis upon which AIOFP could challenge the legality or validity of CSLR or, more specifically, the legislative components of CSLR that impose levies,” Quinn stated in his advice to the AIOFP.
“The provisions that impose levies to fund CSLR are contained in the Levy Act and the Levy Regulations. These are supported by section 51(ii) of the Constitution of the Commonwealth of Australia (Constitution) (the taxation power).
“They satisfy the well-established requirements of laws with respect to taxation enacted under that placita. Further, in accordance with section 55 of the constitution, the Levy Act and the Levy Regulations contain only provisions with respect to the imposition of levies, and not other aspects of CSLR.”
According to the KC, who had previously provided an expert legal opinion on section 99FA of the SIS Act, neither the “broad social or economic policy objectives of such laws” nor their fairness and equity are “relevant to the validity of the laws”.
Specifically, while a tax cannot be “arbitrary”, Quinn said this “condition of validity does not permit any analysis of the fairness of the tax or of whether it targets some persons to the detriment of others on grounds that seem unreasonable, discriminatory, harsh or unjust”.
“Rather, in order that it not be arbitrary in the constitutional sense, it is simply necessary that the tax be based upon ascertainable criteria,” he said.
“That is, liability must be imposed by reference to criteria which are sufficiently general in their application, and which mark out the objects and subject matter of the tax, such that the tax is ‘contestable’ and not dependent upon the mere opinion or preference of government agencies.
Quinn added: “The reasonableness or fairness of the criteria are not relevant to validity. It follows that the legislation is not beyond power on the basis that it is arbitrary.”
The explosion in the cost of the CSLR on financial advisers, set to hit $70 million during FY2025–26, has inflamed questions about not just the fairness, but the sustainability of the scheme.
Likely anticipating the furious response of the advice sector, outgoing Financial Services Minister Stephen Jones announced a post-implementation review of the CSLR to “ensure the scheme is delivering its intended objectives”.
“Ensuring the scheme is sustainably funded will be an important focus of the review,” the minister said last month.
Hamilton Locke partner Simon Carrodus reiterated a number of concerns that have plagued the CSLR since it was established, including the impact of Dixon Advisory.
“It feels like almost everybody – advice firms, regulators and industry bodies – welcomes the CSLR review. The current structure is unfair and unsustainable,” Carrodus said.
“The scheme should be funded by all AFCA members, not just financial advisers. And all Dixon Advisory complaints should be excluded from the scheme – it was never supposed to be retrospective.”
Responding to Quinn’s legal advice, AIOFP executive director Peter Johnston lamented that any attempt to amend legislation that “attacks any government tax or levy is destined to fail in the High Court”.
“Simply put, you cannot beat ‘City Hall’ when it comes to their money supply. It is a shame this same attitude does not apply to consumer protection,” Johnston said.
“The only way this repugnant legislation can be amended is in the parliamentary process, the best time is over the next few months leading into the election when all politicians will listen.”
He is, however, not hopeful on the effectiveness of the Treasury review of the CSLR, arguing that Minister Jones “allowing Treasury to evaluate their own handiwork is farcical”.
“We also suggest this review is an effort to kick this very controversial and extremely ‘putrid can’ down the road until after the election,” Johnston said.
The resolution, he added, is to go back to the original intent and recommendations of the Hayne royal commission and the Ramsay report.
“Specifically, advisers must pay for poor strategic advice outcomes and manufacturers for the failure of their own products, it’s not rocket science and is painstakingly fair,” Johnston said.
“The fact that AFCA has cooperated with the flawed CSLR structure by using the ‘best interests duty’ to justify advisers being held responsible for product failure emphasises why the legislation needs amending.”
While Johnston believes the “political haggling process” will likely lead to the elimination of the retrospective nature of Dixon complaints, he said product manufacturers “must be held accountable for the performance of their own products”.
“It is time for all advisers to educate their clients on the insidious and expensive characteristics of this legislation and give them some direction on who they should NOT vote for in the upcoming election. This will certainly get the attention of the politicians, we need to act,” Johnston said.
In the perpetuation of ignorance and Defective Legislation, ASIC, Treasury and Politicians are in denial that advisers pass levies (not a soft tax?) onto their clients, which contradicts Michelle Levy’s Quality of Advice review. Government Agencies have forgotten that retail advisers no longer get investment commissions, so post 1 July 2013 ongoing adviser fees are hiked for levies, which are not (Microprudential) functionally related to the ‘Give Advice’ under ASIC’s AFSL licensing. Last July and August 2024, every client signed (under Private Law) to increase their Ongoing Adviser Fees to cover the levy (flat tax) of ASIC IFM and CSLR by $116 for each of their investment accounts. However, in the review of Fee Consent forms from 10 January 2025 by Minister Jones, Legislators forgot (ignorance defective again) to include additional rows on the forms for advisers to list each levy type and collect a proportional allocation of levies from each client’s account. This again proves Defects in Legislation, because Public Law does not provide for levy collection from clients, which then has to be done under Private Law BUT ASIC can say, you have to disclose financial advice fees in articulate details, but levies are not providing an advice activity under ASIC licensing (Public Law – Catch22 Defect in Legislation). Here are some things to consider about legislation defects in Australian Commonwealth legislation:
The CDDA Scheme
Provides compensation for people who have experienced detriment due to defective actions or inaction by government agencies. This scheme is generally used as a last resort when there is no other way to provide redress.
Formal defects
The Federal Court of Australia Act 1976 states that formal defects or irregularities do not invalidate proceedings in the Court, unless the court believes that substantial injustice has occurred.
Legislation review
Legislation should be regularly reviewed for readability, usability, and policy desirability. Reviews should also consider the legislation’s continuing relevance and the underlying policy.
Law reform
The Australian Government may identify areas of Commonwealth law that need to be reviewed, improved, or developed. This can be done for a variety of reasons, including:
• Community concern about a particular issue
• Recent events or legal cases that have highlighted a deficiency with the law
• Scientific or technological developments that have made it necessary to update the law.
In my submission to the Commonwealth Ombudsman complaint, I asked under the CDDA Scheme for a refund of the levies paid in 2024, to then go towards paying 2025 levies payments to ASIC (complies with “section 51(ii) of the Constitution of the Commonwealth of Australia (Constitution) (the taxation power)” – quote from Bernard Quin KC. I suggest every AFS licensee which paid IFM & CSLR levies in 2024, apply to CDDA Scheme for a refund of 2024 levies, in order to pay 2025 ASIC’s levies AND then advisers will not have to increase levies components on clients – is that fair under Common Law in procedural justice and distributive fairness?
BUT, as advisers who are not actuaries to calculate an increase in CSLR from $20 million to $70 million, advisers (who do not handle client’s funds) need to retain levies from their clients because of CSLR compensation to managers’ clients who handled clients’ funds and lost it (see – another Defect in Legislation). All these Defects in Legislation show that the Government Agencies and their Political Collusion are Microprudential failures, because their Macroprudential Public Law Legislations are many silos of ignorance with defects.
What is likely to be the 3rd levy on AFS Licensees advisers who do not handle clients’ funds?
If you read Treasury’s IFM Final Report dated 26 June 2023, it said that ASIC charges financial advisers costs for “near advice” by those wrong-doers not registered in ASIC’s Financial Adviser Register, which ASIC avoided disclosing to the Senate Economics References Committee (August 2023). In order for scammers to extort $2.7 billion from Australians in 2023 who do not have a financial adviser, scamming is a “near advice” activity, under the definition in this Treasury Report. Therefore, the legal gate is open for ASIC AFS licensees advisers to pay compensation for this “near advice” illegal scamming activities. That’s the legal logic in Bernard Quin KC “section 51(ii) of the Constitution of the Commonwealth of Australia (Constitution) (the taxation power)”. My guestimate (not an Actuary) is that the Government should fund the education of financial advisers to 260,000 (10,000 advisers per 1 million population) to try to offset scammers, given that scammers got away with $2.7 billion with less than 16,000 financial advisers in 2023. (Oh sorry, another proposal for a 4th levy.)
$70m divided by 15,000 advisers is less than $5k each.
If you have 100 clients thats $50 per client per year.
SUre, the CSLR is an utter joke, but let’s pretend that it’s sending us poor or that we cannot easily pass this cost straight through to clients.
A smart adviser would just up their base fee by an extra $100 this year, which allows the scheme to blow out to $140m without costing you.
Life is unfair, boo hoo, less crying, just implement smart solutions.
You seem to be extremely naive and simplistic and lack principle.
If financial advice is so integral to society then we should fund it just like Medicare and trains. This is where tax payers fund the service as well as any negative outcomes. We are currently and extremely regulated just like a public service, so there’s an argument that complaints should also be funded by tax payers, given this “regulatory capture”.
Instead we are privately funding complaints individually and as a group of advisers in a deeply regulated environment. You can’t have it both ways.
If we are as a group to fund complaints then we need self regulation and enforce standards upon ourselves.
You honestly believe it’ll just be $70m?
And for equity principles can you give us examples of other occupations treated this way along with breach reporting, education standards, ethical regime, etc.
You really want your clients to pay for dodgy fp down the road if you weren’t active in self regulation of your peers? I would not want to be your client.
Nice to see you care about your clients. Slugging them with fees for other advisers bad advice like it is nothing and not sticking up for them shows how much you care about them. I can see how this attitude will put your clients in a wose off position as you just let them pay more and more. Perhaps it is your advice the rest of us are paying for. You are also naive to think the only cost has been the levy itself, what about the time everyone has spent understanding it. That is right, you clearly have not spent anytime understanding it and you leave the rest of us in the industry to do it for you, after all, all you need to do is charge your clients more. Why don’t you put your name to your post and learn to advocate for your clients and the industry?
You are a clown!
Who is paying for the “adviser content” charge for the CSLR?
ie. Are the industry funds employed advisers being included/ allocated a CSLR charge?
I reviewed an SOA prepared by a Uni Super – Private Client Adviser, an employee representative of Uni Super Management. are they being allocated a contribution for CSLR
What about the Intra Fund providers?
Where’s all the shouty ethicist academics?
They have had an opinion on everything before, perhaps they should give their opinion now.
This is massive moral hazard, unfair and unethical.
What should my clients in regional Australia pay more to cover the Dixon debacle which was reported to ASIC before it all blew up.
Ok, but it still doesn’t explain why Dixons was chosen as the only retrospective claim under the CSLR.
As a financial planner, I understand the purpose of CSLR. What I don’t understand is how complaints against people who are not licensed financial planners is caught by this scheme.
They’ve gone from milking the cows to now butchering them. Not a good career prospect at all.
What about the legal concept of equity? If the law is drafted in an unfair manner (e.g. slugging advisers for someone else’s wrongdoing), surely a court can rectify the situation to make it fair. Otherwise, the government of the day will keep legislating the industry out of existence.
The Dixon review when it happens will find political (Protectionism) motivations were at the foundations of the CSLR regulations and as such Jones has resigned before the investigations begin. It will also show ASIC were complicit and all those involved are using this time to delete emails and make deals.
How many more nails are required?
None!
It’s Futile!
Buy a coffee a shop there cheap at the moment yes early starts, yes, a lot less money yes, you have to put up with casual employee but hell but just about anything beats running a FP business regardless of the profit margins.