How Dixon Advisory collapse has fuelled looming CSLR costs
The collapse of Dixon Advisory has emerged as a key driver of the numbers being considered as part of the establishment of the Compensation Scheme of Last Resort, according to evidence given to a Senate committee.
The Australian Financial Complaints Authority (AFCA) has admitted the centrality of claims against Dixon Advisory in terms of 1,180 consumer claims amounting to $357 million.
Of the $357 million being claimed by consumers, AFCA’s chief operating officer, Justin Untersteiner said that of the 1,83 complaints, and the $357 million 1,723 related to Dixon Advisory amounting to $332 million.
“So, that [Dixon Advisory] is absolutely the material component of those amounts,” the AFCA COO said.
AFCA chief executive, David Locke said that the Dixon Advisory matters had not yet been considered or dealt with by AFCA but that he believed that they would fall within the scope of the Compensation Scheme of Last Resort.
He said that putting aside the impact of the Dixon Advisory complaints, the only other matters in scope were 35 complaints amounting to $4.7 million.
Dixon Advisory was placed into administration earlier this year following action launched by the Australian Securities and Investments Commission (ASIC) in 2020 in which the regulator alleged that advisers had failed to act in their clients’ best interest with respect to the company’s related US Masters Residential Property Fund.
The nature of the Dixon Advisory collapse has given rise to calls from financial planning groups that the funding of the CSLR should be extended beyond financial advisers to product manufacturers, including those involved in managed investments schemes (MISs).
It had been hoped that the Labor Government would bring legislation to the Parliament which included funding by product manufacturers but this has not been the case.
In giving evidence to the committee, AFCA’s Locke acknowledged that financial advisers would be mostly responsible for funding the CSLR, but suggested that it was smaller firms who were mostly responsible for unpaid determinations.
He said that were larger entities such as banks and financial institutions were concerned, determinations were mostly paid.
Asked about the scale of the backlog of unpaid AFCA determinations, pointed to 1,800 unresolved complaints but said that the monetary quantum of those complaints could not be determined until they had been investigated.
Vertically owned MIS that failed and was flogged by vertically owned Advisers because the vertically owned managers made advisers use their own rubbish products.
Yet again Vertical integration of MIS & Advice FAILS.
Vertical ownership must be BANNED !!!!!
So any blind Freddy could see that train wreck happening yet ASIC took action after the horse had bolted and now those of us left in the industry must pay for: (1) Dixon’s greed (2) ASIC’s inaction and lack of regulatory oversight (3) Clients greed/stupidity… “Yes Mr & Mrs Client you need ANOTHER one of OUR Property funds in your SMSF portfolio. Seems about right <rolls eyes>!!!!
Dixon looked and smelt dodgy for years prior to falling over. How much of the $332M is linked to inaction by ASIC for years?
So in essence what the CSLR is yet another mechanism to tax all the majority of good honest financial planners for the misdeeds of the small minority of advisers like Dixon Advisory. How about APRA/ASIC/The government doing something about firms like Dixon’s simply shutting down and opening up the next day under another name and walking away from the mess they created and benefited from.
$332,000,000 spread across 15,800 advisers….
$21,000
As one of the advisers already qualified to go past 2026 when there will likely be 5,000 advisers left, this figure goes to $65,000 per adviser. This is clearly NOT the pathway forward.
So Dixon Advisory makes the mistake, and all other advisers have to pay up?
Seems a bit unfair to me
Product failure should not be paid for by financial advisers; especially if they had nothing to do with that product.
What is being proposed is crazy stuff. Frydenberg and Hume were truly incompetent.
As a long-standing risk-only adviser, the whole concept of adviser levies appalls me. It’s particularly appalling with the Dixon case, where the founder, based in Canberra, constantly took potshots at commission based “old lifies”, inferring that we were crooks, and even going on to advocate that the most life insurance anyone ever needed was $250,000 of death and TPD from NRMA Life,. The fact that I, as a risk only adviser, may now have to contribute to funds to pay out Dixon clients for conflicted crap advice and crap products delivered over a long period of time (hello ASIC) is totally unacceptable. It makes me sick in the stomach.
Let’s divide up the funding mechanisms for poor risk advice versus poor investment advice.
Is this for real? Advisers would need to pay $20k each to cover this, and whatever else comes up. How is it a system is setup where the perpetrators get off free but everyone else has to pick up their tab.
ASIC failure… too busy looking for genuine advisers who haven’t dotted the “i” or crossed the “t” on SOAs to be concerned about the real issue of poor products and the results of vertical integration distribution…
So suddenly, we become every failed product designer’s cash cow…
I expect the financial adviser cohort to reduce another 50% or so in the near future.