Regulatory framework found wanting on Dixon Advisory says TAA

Members of the AMP Limited-focused The Advisers Association (TAA) reported concerns about Dixon Advisory activities more than a decade ago but little action was taken by the regulator until recently.

The TAA has told a key Parliamentary Committee that despite the severity of the Dixon Advisory breaches, “no individual advisers or executives faced personal accountability, which raises broader issues about the effectiveness of regulatory frameworks in holding financial service providers accountable.

The TAA’s submission into the Senate Economics References Committee inquiry into Wealth Management Companies argued that concerns about compensation arrangements had been recognised by the Compensation arrangements for consumers of financial services report undertaken by Richard St John in April 2012.

It noted that even in 2012 St John had stated that the advisers were picking up the costs of compensation rather than licensees.

The TAA quoted the covering letter attaching to the 2012 report as stating: “the regulatory platform for financial advisers and other licensees needs to be made more robust and stable before a safety net, funded by all licensees, is suspended beneath it…’ this is ‘…a necessary step before further consideration is given to a scheme under which the cost of uncompensated claims against one firm would be passed on to other firms who are not so remiss.’.”

The TAA submission said that the CSLR is not a new concept and while it was hard to disagree with a scheme to compensate consumers for losses due to financial scheme misconduct when firms could not pay Australian Financial Complaints Authority (AFCA) determinations, TAA members had multiple concerns about the CSLR.

It said those concerns are as follows:

The CSLR levy disproportionately affects small financial advice businesses and individual advisers who are already facing financial strain.

• The retrospective application of the levy is unjust, holding current and new advisers accountable for past failures like Dixon Advisory.
• The estimated $5,709 CSLR levy, combined with the $2,818 ASIC levy and other costs of being licensed, imposes an excessive financial burden on advisers.
• This burden will likely be passed onto clients, undermining the government’s goal of increasing access to affordable financial advice.
• The CSLR scheme does not include Managed Investment Schemes, which have been a significant contributor to past consumer financial losses and featured in Dixon Advisory.
• Holding advisers responsible for the failures of large corporations like Dixon Advisory is inequitable and unsustainable.
• The government’s reduced commitment to funding the scheme’s initial costs raises concerns about its long-term viability.