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Financial advisers want Labor to tighten rules around CSLR after Dixon Advisory debacle

Financial advisers say the government’s newly minted compensation levy scheme needs to be reworked after being left with a $130m bill for Dixon Advisory clients.

Dixon Advisory was the fourth largest self-managed superfund provider in Australia. The company filed for voluntary administration in 2022.
Dixon Advisory was the fourth largest self-managed superfund provider in Australia. The company filed for voluntary administration in 2022.

Financial advisers say the government’s newly minted Compensation Scheme of Last Resort (CSLR) levy is “badly flawed” and needs to be reworked after being left with a $130m compensation bill for clients that received shoddy advice from the collapsed Dixon Advisory.

The scheme, which came into effect in April, allows victims of poor advice and financial misconduct who have been unable to access redress through other avenues because of insolvency, to claim up to $150,000 in compensation.

Financial Advice Association Australia chief executive Sarah Abood said the financial planning sector was livid about the prospect of being forced to pay $130m to bail out the victims of Dixon Advisory, which collapsed more than two years ago, while its parent company E&P Financial Group escapes “scot-free”.

“Financial advisers are furious about this. They feel they’re being blamed and being asked to pay for what other people did,” she said.

“We all want consumers to be made good if that happens, but at the very least, it should be the people who pay for that should be the people who did the wrong thing.”

Financial advisers were told that they would have to pay about $1200 each to cover claims made largely by Dixon under the CSLR, but the sector is concerned that the bill could increase by a further $4500 each following a surge of 544 claims between February and April from Dixon clients.

Average claims are estimated to be at least $120,000.

The FAAA had a win after the Australian Financial Complaints Authority last week decided to terminate the membership of Dixon Advisory from June 30, which would mean no further claims for compensation could be made.

Financial Advice Association Australia CEO Sarah Abood says the government needs to rework its CSLR legislation to avoid another Dixon Advisory.
Financial Advice Association Australia CEO Sarah Abood says the government needs to rework its CSLR legislation to avoid another Dixon Advisory.

Ms Abood said the move did nothing to solve the broader issues with the legislation which left the industry at risk of being weighed down by another Dixon Advisory-style incident.

“The CSLR is a fundamentally good idea that’s been badly implemented. And it really is important to consumers that we fix this,” she said.

“What stops another group from doing a Dixon in the future and we actually can’t afford it,” she said. “Our members are small businesspeople, many of them operating businesses of less than 10 staff. They just can’t afford to keep writing open-ended cheques.”

The FAAA wants the government to broaden the scope of the scheme to also include managed investment schemes, because as it currently stands if an investor has lost money in a managed fund that has collapsed there is no scheme that offers restitution.

“Our concern is that if there is ever an entity where both advice and product are offered, the temptation is always going to be to define it as an advice failure and forget about the product failure because consumers won’t receive anything otherwise,” she said.

“If we allow that to keep happening, we’re not addressing the problems with products themselves.”

Ms Abood described the ability for retrospective claims under the CSLR as “bad practice”, with clients able to make claims under laws that took effect in April for incidents as far back as 2018.

“That’s just fundamentally bad legislation,” she said.

The FAAA also saw scope to tighten rules around so-called “phoenixing” behaviour, where companies can dissolve and re-emerge without addressing their liabilities. She added that Dixon Advisory’s parent company E&P Financial was still around and had many people involved with the collapse still on its payroll.

“This is a large, listed entity which has not gone away,” she said. “The group made more than $170m in revenue last year and have retained a number of clients and advisers in a different licensee within that group.

“It’s just astonishing that we’re being asked to pay compensation to those clients when this group is still operating.”

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.

Ms Abood said that the CSLR is one scheme that is having the opposite impact on the government’s pledge to make financial advice more accessible to everyday Australians with it driving up the cost of advice.

“Advisers have these bills to pay, so they’re going to have to either go out of business or pass these costs on to their clients,” she said.

“Ultimately, clients are paying for this.”

Recommended by the 2017 Ramsay Review and the banking royal commission, the CSLR fills a gap in consumer protections by helping those unable to get compensation from insolvent firms. It will consider claims from individuals who have received a determination of compensation from the AFCA but have been unable to collect payment due to the insolvency of the responsible party.

The scheme covers matters related to investment advice, trading stocks or bonds, borrowing money from a company or getting help to borrow money, including through a mortgage broker.

It excludes managed investment schemes, foreign exchange or derivative trading, insurance brokers, superannuation, scams and insurance products.

Matt Bell
Matt BellBusiness reporter

Matt Bell is a journalist and digital producer at The Australian and The Australian Business Network. Previously, he reported on the travel and insurance sectors for B2B audiences, and most recently covered property at The Daily Telegraph.

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Original URL: https://www.theaustralian.com.au/business/financial-services/financial-advisers-want-labor-to-tighten-rules-around-cslr-after-dixon-advisory-debacle/news-story/023cde6f8eff7df00aab8aa65e2b3473