FAAA warns PC against removing vital protections

Mike Taylor

Managing Editor and Publisher

7 July 2026

The Productivity Commission has been warned that the financial advice profession is one area in which it needs to move carefully in making any changes with respect to attempting to reduce barriers which may be impeding business.

The Financial Advice Association of Australia (FAAA) has told the PC that financial advice is an area where there needs to be careful limits to control the ability of entities and individuals to “come into a sector, create issues for consumers and then quickly exit”.

In doing so, the FAAA has cited the circumstances around the collapse of Dixon Advisory, the cost of funding the Compensation Scheme of Last Resort (CSLR) and the continuing fall-out around the collapse of managed investment schemes.

The FAAA also pointed to the time and cost involved in acquiring an Australian Financial Services License (AFSL) but said warned against blindly moving to shorten the process because of the ongoing liabilities involved in delivering financial advice.

“Poor financial advice can have significant and long-term consequences for the clients. The clients of financial advisers have the option to make a complaint to the Australian Financial Complaints Authority (AFCA) and they can do this up until six years after becoming aware of any loss that they have sustained,” it said. “The responsibility for these complaints rests with the licensee, who by the time of making the complaint may no longer operate.”

“The financial advice sector is subject to a compensation scheme of last resort (CSLR), where any client who has an unpaid AFCA determination related to a financial advice licensee, that subsequently goes into liquidation, can claim compensation from the CSLR, which is funded by other ongoing businesses within the sector.

“This scheme, that commenced in 2024, was expected to cost less than $10 million per year (Treasury July 2021). On 2 July 2026, the CSLR announced that the cost of the scheme for the financial advice sector in 2026/27 would be $190.3 million. This is 19 times what Treasury projected only five years ago.

“These losses have largely been driven by the collapse of managed investment schemes (MISs) such as those related to Dixon Advisory, Shield and First Guardian. Financial advisers are therefore very circumspect in terms of people rapidly entering the profession or leaving the profession quickly. This is one sector where business dynamism comes with complications.”

The FAAA also pointed to issues with respect to insolvency and specifically cited the case of Dixon Advisory which it said was ultimately expected to cost the CSLR as much as $300 million.

It noted that “the clients and advisers were transferred to another financial advice business within the same group for no payment. Despite claims amounting to hundreds of millions of dollars, E&P Financial Group were able to settle with the administrators and walk away after making a contribution of $4 million”.

“Thousands of complaints have been submitted to the CSLR and in fact compensation paid by the CSLR has been invested by these same clients with the E&P Financial Group,” the FAAA said.

After citing another case, it said that, “regrettably, it is now a well understood pathway to transfer advisers and clients to another business and continuing to operate under a different licensee, whilst leaving the cost of outstanding complaints to be picked up by other innocent operators in the profession through the CSLR”.

“It is important that any changes to the insolvency regime need to more carefully restrict phoenixing activity. It is also important that liquidators are empowered to pursue phoenixing activity and that those who are responsible are held to account,” the FAAA said.