Financial advisers’ peak body says government’s compensation levy will drive out operators

The body representing financial advisers says members are paying the price for the Dixon Advisory collapse and a levy coming in to pay for poor guidance will cost each of them about $1200.

FAAA chief executive Sarah Abood says the CSLR scheme punishes advisers for the mistakes of the defunct Dixon Advisory.

Financial Advice Association Australia says advisory businesses could be driven out under the federal government’s new Compensation Scheme of Last Resort (CSLR) levy when it comes into effect from July 1.

The industry body says the levy, designed to compensate those who have received a determination in their favour from Australian Financial Complaints Authority, “flies in the face” of government’s desire to make advice more accessible and affordable.

Under the arrangement, financial advisers will be required to pay $18.5m out of $24.1m across the financial services sector to meet eligible compensation claims and costs from July 1 to June 30, 2025.

There were 15,624 advisers registered as at the beginning of March and if split on this basis, the FAAA said the cost per adviser will be just under $1200.

FAAA chief executive Sarah Abood said there is already an historically high ASIC levy, and while the body had been supportive of the scheme in principle, it should not apply to financial advisory small businesses in a retrospective manner.

“The CSLR is intended to promote trust and confidence in the financial services sector and in particular, financial advice,” she said.

“However, if advisers are driven out of business by rising costs, through being made to pay for the poor behaviour of those who left the sector years ago, there won’t be a financial advice sector left to have confidence in.”

Ms Abood said the Dixon Advisory black swan event, and the shortening of the initial period which is funded by the government were highly retrospective and had a negative effect considering the event long predated the establishment of the scheme.

“Advisers are going to be slugged $1200 each to fund the scheme, which is almost entirely due to Dixon Advisory, and it will only go up in the years to come,” she told The Australian.

Dixon Advisory, once the fourth largest self-managed super fund provider in Australia, announced in January 2022 that it had filed for voluntary administration.

It was alleged by ASIC at the time to have had significant commercial interests in and received commissions for advising clients to place their savings into the US Masters Residential Fund, the Asian Masters Fund, the Cordish Dixon Private Equity Funds and other similar products.

The FAAA said there were 1948 complaints regarding Dixon Advisory before the AFCA, and that number would continue to grow as it was still a member of the body despite no longer existing.

“As a result, many claims will fall into the period for which financial advisers will be charged,” Ms Abood said. “The vast majority relates to Dixons.”

“This flies in the face of the intent when setting up the scheme, as it will now become almost wholly retrospective in the way it applies to financial advice, well into the second and later years of operation.

Ms Abood said while $1200 slug for each adviser, who were often small business operators, might not be much, it came on top of other costs that surged including a tripling in the ASIC levy.

“They’re trying to run small businesses and getting hit with a cost like this for each adviser in business, on top of the ASIC levy, on top of their PI, their professional indemnity insurance, on top of their license fees and so on, will make this the final straw for some who will leave,” she said.

“This is not achieving what the government wants, which is getting great advice to more Australians, particularly when more and more are requiring literally every year. We’re heading in the wrong direction.

The FAAA wants the government to remove retrospectivity by covering historical claims based on the date the claim is made, not the date the claim is finalised.

The CSLR will facilitate the payment of up to $150,000 in compensation to eligible consumers who have received an AFCA determination awarding compensation in relation to complaints in one of four areas: personal financial advice, credit intermediation, securities dealing or credit provision.

Since the royal commission, the number of registered financial advisers in Australia has fallen from 26,500 in 2019 to 16,155 in 2023, according to the corporate regulator.