Advisers remain exposed to $135m on Dixon Advisory

Mike Taylor

Managing Editor and Publisher

12 July 2024

Financial advisers could be forced to pick up as much as $135 million of claims related to Dixon Advisory, according to the Financial Advice Association of Australia (FAAA).

While welcoming the fact that Dixon Advisory’s membership of the Australian Financial Complaints Authority (AFCA) had ceased, the FAAA pointed to estimates suggesting that ultimate exposure for financial advisers might be $135 million.

“Estimates suggest financial advisers could be forced to pick up as much as $135 million of claims related to Dixon Advisory, whilst the parent company (E & P Financial Group) has settled its class action for around 4 cents in the dollar, while continuing to operate and advise many of the affected clients,” FAAA chief executive, Sarah Abood said.

“This highlights a deep flaw in the CSLR funding model that must be fixed. The Dixons scandal is on such a massive scale that it warrants a public inquiry into the circumstances that led to this failure and recommendations to ensure this cannot happen again.”

Abood went on to outline actions the FAAA believed needed to be urgently taken to fix the funding flaws for the CSLR.

1. The CSLR funding model must be prospective, not retrospective. Advisers should not be paying for matters that occurred well before the scheme came into being.
2. The government needs to pay the first full year of operation of the scheme as was originally promised, rather than just 3 months.
3. The government should re-instate the original sector cap (a maximum of $10 million that could be levied per sector), rather than the $20 million that currently applies.
4. Our sector should be indemnified against future CSLR claims, where a matter has been reported to ASIC and ASIC has chosen not to act, or has substantially delayed action.
5. The government must act to ensure that large vertically integrated groups cannot avoid paying fair compensation to consumers by putting a subsidiary into administration.
6. The government must ensure that all other avenues for client compensation have been exhausted before financial advisers are charged.
7. A party must be appointed to defend complaints against entities no longer in existence. At present no-one is speaking for the advice provided to the consumer or defending these claims.

“We consider these actions to be urgent in order to secure a sustainable and fair funding base for the CSLR, so that consumers can continue to receive fair compensation if they have suffered a loss due to poor advice,” Abood said.