The Rising Cost of Financial Advice: the CSLR levy, Professional Indemnity and Why Fees are Rising

The cost of receiving financial advice has skyrocketed in Australia over the past five years. According to the 2025 Australian Financial Advice Landscape Report, the median financial advice annual fee jumped 18% to $4,668 in 2025 and has risen 67% over five years. To put this into perspective, inflation increased 19.81% in the last five years, while Amazon (Nasdaq: AMZN) share prices gained 47.49% in the last five years to end November.

There’s more driving the cost of advice than inflation and in this article, I’ll explore some key aspects to the jump in fees – it’s not just clients feeling the hit, but financial advisers too.

While compliance and education requirements and technology costs are part of the cost to operate, two critical factors affecting fees are the costs of professional indemnity (PI) insurance and the CSLR levy.

A Quick Explainer on the CSLR Levy

Every industry has its bad players and there’s been some spectacular failures in the financial industry. Think Storm Financial, Dixon Advisory and this year’s collapses of First Guardian and Shield.

Australians have lost billions in financial collapses and The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended an independent body to investigate financial complaints, along with a compensation scheme.

The Australian Financial Complaints Authority (AFCA) was established in 2020, while the Compensation Scheme of Last Resort (CSLR) commenced in April 2024. Customers who have made a complaint to AFCA and have an unpaid determination might be able to receive up to $150,000 in compensation via CSLR.

The CSLR is funded by a levy on specific parts of the financial industry, including credit providers, credit intermediaries, securities dealers and personal financial advice.

In addition to compensation, the levy also covers AFCA complaint fees, operating costs for CSLR, capital reserve contribution and ASIC administrative costs.

“The positive for the end client is that it creates a process and funding mechanism to support them if something goes wrong. However, it does mean that financial advisers doing the right thing are having to pay the costs of others’ mistakes and it comes from their revenue,” says Roger Perrett, Financial Advisor – Partner for Freshwater Wealth.

The CSLR levy is capped at $20 million per sector per year and estimated each year based on business activities. Where costs are likely to exceed the cap for the year, there may be a Further Levy capped at $20 million and beyond that, the Minister for Financial Services will be notified and can elect whether a Special Levy is needed, the amount, timing and which sectors it applies to. The Special Levy is capped at $250 million.

The total levy is calculated for each financial year based on estimates of claims to be paid in that year, fees and costs to administer the fund. Each subsector has an individual breakdown based on its size in the industry – typically financial advice is the largest. Calculations are based on the financial year two years prior and business activity.

The Costs of the CSLR Levy

For the 2025-2026 financial year, there is a minimum levy of $100 plus $1,295 per adviser. This is based on data from 2023-2024. For financial advice firms operating in more than one sector, for example, financial advice and securities dealers, they would need to pay both levies.

There will also be a Special Levy. The government held a consultation period in August to discuss options for the industry to pay the additional $47.29 million estimated for the 2025-2026 tax year. The outcome of this is expected to be announced in a few weeks.

These numbers are nothing compared to the estimates for the levy for FY27.

The initial estimate is $126.9 million and doesn’t include the costs of the Shield and First Guardian collapses. Including those could see the number double.

As financial advisers pay the levy from their revenue, this could see fees continue to rise to cover costs, particularly when the levy fluctuates year-to-year and can be dramatically higher in some years.

“Smaller businesses really feel the impact of the levy and may be forced to increase fees. Larger businesses are often more able to absorb the costs. In our case, we might aim to add another client to the books to offset the levy rather than increase fees,” says Freshwater Wealth’s Roger Perrett.

Rising PI Insurance

Australians have been hit by rising premiums in every area of insurance, from home to healthcare. Professional indemnity insurance for financial advisers is no exception.

Insurance premiums have been influenced by rising inflation in recent years and shifting interest rates. This has resulted in upward adjustments of premiums to ensure both profitability and the ability to pay out on claims.

It is a regulatory requirement for financial advisers to hold PI insurance, but it is not a profitable area for insurers given the sizes of claims in this space. This means the industry has faced challenges with limited supply and competition from insurers. Accordingly, premiums have risen sharply.

PI insurance increased 40% between 2015-2023, according to APRA. While ASIC found improvements in the insurance market more recently, it also noted a lack of transparency around what cover licensees hold, the claims they make and the time it takes to finalise claims.

Just like the levy, premiums may be better absorbed in larger businesses compared to small advice firms.

The Rising Cost of Advice

The combination of the levy, rising premiums, education and compliance requirements, along with technology costs have meant higher operating costs for financial advice firms. It has meant a hit to profitability – and rising fees to counter this, thus a hit to clients too.

According to Adviser Ratings, mandatory costs range between $38,877 to $83,877 per adviser annually. In addition, 58% of smaller firms (revenues below $250,000) report no profit. Many firms have had to evaluate their service models to ensure they turn a profit and support their clients.

Conscious of the rising need for financial advice and the growing costs, the Australian Government is in the process of finalising legislation to make financial advice more affordable and transparent. The first tranche was approved in 2024 and covered client fee consents.

Australians can also claim tax deductions on financial advice fees in certain situations, such as for income-producing investments or advice on income protection insurance.

Options to Combat Costs

When it comes to financial advice, there are scales of what you can seek and be charged for. This could look like advice for specific circumstances or a premium ongoing service where you are paying an annual retainer.

Those concerned about rising fees might take the time to evaluate what level of advice they actually need and go from there.

Common fee models might look like:

1. Fee-for-service

In this model, you might pay an hourly or flat fee for specific services. Or you might pay an annual retainer under which certain services are covered. Scaled or limited-scope advice where you might pay a flat fee for advice on just one specific need, such as on life insurance for example, sits in this model and has become more popular as an affordable option recently.

2. Asset-based fees

This is where fees are charged as a percentage of the assets the financial adviser manages for you. This is typically an option for higher portfolio balances and can be more cost-effective compared to fee-for-service models in certain situations.

Commission-based fees

These are now banned in Australia, but previously, advisers might earn a commission on products they recommended that clients invested in and in turn, clients might appear to be charged less because the fees were built into the products instead. Whichever approach you take to income, there are a few additional things to remember.

While traditional financial advice would see a client sitting with their financial adviser – and this is still an option – some firms also offer technological solutions in their service model in the form of robo advice and hybrid advice.

Robo advice involves computer models where advice or portfolio strategy are set according to specific data, like risk tolerance, goals and budget. The portfolio management is then automated based on the selected strategy. It is typically the cheapest form of financial advice, though usually doesn’t work for complex situations and doesn’t offer much in the way of personal tailoring.

More recently, hybrid models which combine digital tools with a financial adviser have grown in popularity. The aim is for the digital tools to automate administrative and labour-intensive activities, such as budgeting and implementation of portfolio management, while the financial adviser sets the strategy and offers personalised advice or manages complex issues. It can be more cost-effective and scalable than traditional financial advice.

The Future of Advice?

The rising costs for financial advice, including from the CSLR levy and PI insurance premiums, mean that advisers and investors alike will need to continue to look for efficiencies to better manage costs.

The use of scalable advice and hybrid models in particular will continue to be important as more and more Australians need support in their finances. Advancing technology will continue to shift the space and investors will do well to stay tuned to the options available.

Disclaimer: This article is prepared by Sara Allen. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.