A key trigger for fixing the CSLR remains frozen

ANALYSIS

It was supposed to be the subject of a report to the Senate by the last sitting day of March, but one of the most important inquiries for the financial planning profession remains unfinished and facing an uncertain future.

With the Federal Election called for 3 May, the reporting date for the Senate inquiry has been kicked down the road to 28 July, but the nature of its hearings and shape of its findings will largely depend on make-up of the new Parliament.

The Senate Economics References Committee inquiry into Wealth Management Companies which kicked off on 17 February, last year, has as its terms of reference some of the major issues an examination of the Dixon Advisory collapse and the funding of the Compensation Scheme of Last Resort (CSLR).

It will be lost on no one in the financial planning profession that virtually every stakeholder has made clear to the major parties that fixing the CSLR is a absolute priority for the new Parliament.

What is important about the Senate inquiry is that while it has received multiple submissions from key financial planning stakeholders, it has not held a single public hearing to interrogate those making the submissions.

The terms of reference of the inquiry tell the story:

The reasons for the collapse of wealth management companies, and the implications for the establishment of the Compensation Scheme of Last Resort (CSLR) and challenges to its ongoing sustainability, with particular reference to Dixon Advisory & Superannuation Services Pty Limited (Dixon Advisory) as an example, and:

(a) the underlying cause of the collapse of wealth management companies such as Dixon Advisory, including the business model and influence of the sale of related party products, for example the US Master Residential Property Fund;

(b)how the actions of directors of wealth management companies and related entities, senior management and the individual advisers contribute to the collapse of these companies;

(c) the role of the financial services regulatory regime in the context of how matters involving the collapse of an investment product promoted by a vertically integrated business are assessed and how fault is attributed;

(d)evaluation of the placement of wealth management companies into administration and the related insolvency issues, including with respect to the appropriateness of actions by directors and senior management and the transfer of advisers and clients to a related party entity for no consideration;

(e) assessment of the period for which wealth management companies can remain a member of the Australian Financial Complaints Authority;

(f) the role of Australian Securities and Investments Commission (ASIC), including providing consumer information to investors affected by corporate collapse and consideration of the most appropriate arrangements for future cases of insolvency;

(g) ASIC’s role investigating corporate collapse and the appropriateness of any regulatory intervention that may reduce scale of loss for consumers;

(h) options for enforcement action, including litigation, that ASIC has available to it in relation to wealth management companies following collapse;

(i) the implications of the collapse of wealth management companies on the establishment of the CSLR, including with respect to design considerations and the potential implications for future matters; and

(j) any other related matters.

In other words, all the issues which need to be acknowledged and addressed to fix the CSLR.