Financial advisers have a mixed track record when it comes to understanding what “last resort” means. Whether it’s a Buyer Of Last Resort scheme or a Compensation Scheme of Last Resort, there’s always some who’ll see it as first option rather than a final one.

Advisers who pegged their exit strategies to selling their businesses to a licensee at a multiple of recurring revenue overlooked the fact that a BOLR was meant to be where they turned only if they absolutely could not find a buyer for their business in the market. It was never meant to be where they went first, or exclusively.

Likewise, a CSLR isn’t meant to be the first or the easiest option when it comes to compensating clients for poor advice. There are internal and external dispute resolution schemes that need to be explored and exhausted first. The CSLR will only kick in if other avenues to compensation have been tried and failed and if a determination by the external complaints resolution scheme – the Australian Financial Complaints Authority – is made in favour of the client and remains unpaid.

Even so, there will be some who view a scheme of last resort as their favoured means of compensating clients if the advice they’ve provided is found to be inappropriate, misleading or insufficient, or if they’ve failed to act in the client’s best interests or failed to prioritise the client’s interests in providing financial advice.

But to make the message clear that a compensation scheme really is the last resort, legislation introduced to parliament this week contains a provision that if an AFCA determination remains unpaid and a client is compensated from the CSLR, ASIC will cancel the AFSL of the entity against whom the award has been made.

So, an adviser may ignore or deny a complaint until it reaches the CSLR expecting it to compensate a client for their misconduct, but while it’s on the way there their time will be well spent packing their bags and looking for a new job.

The CSLR emerged as a recommendation of the 2017 Review of the Financial System’s External Dispute Resolution and Complaints Framework (also known as the Ramsay review), whose findings about a CSLR were endorsed by the Hayne Royal Commission.

This week the federal government introduced The Treasury Laws Amendment (Financial Services Compensation Scheme of Last Resort) bill to parliament to set up the CSLR.

In his second reading speech, Financial Services Minister Stephen Jones noted that the CSLR is “designed to act as a last resort mechanism”.

“After the claimant has notified AFCA that their determination remains unpaid, AFCA will be required, where appropriate, to take steps to ensure that the relevant entity – that is, the entity against whom the award has been made – pays the compensation owed,” Jones said.

“The CSLR operator will also need to confirm that no other statutory scheme is available to pay all or part of the compensation owed, including any state or territory arrangements.”

For its part, AFCA supports the creation of the CSLR. It’s always been infuriating to read in AFCA reports the mounting value of unpaid determinations against financial services providers, and to sense the powerlessness a consumer must feel having lost money, successfully pursued a claim and yet having achieved no redress.

These are providers, remember, who’ve had a complaint raised against them by a client, batted it away through their internal dispute resolution mechanism (if they even really have one), stonewalled all the way to AFCA, where a determination has been made against them, and still haven’t compensated the client. In some cases the providers have gone out of business to avoid paying the claim.

AFCA says the CSLR will “support ongoing confidence in the financial system’s dispute resolution framework by facilitating the payment of compensation to eligible consumers who have received a determination for compensation”.