In September, Pauline Hanson’s One Nation moved a motion in the Senate that an inquiry be held to scrutinise the collapse of Dixon Advisory, examining how this failure has influenced the development and ongoing viability of the Compensation Scheme of Last Resort (CSLR).
While submissions to the Senate economics references committee inquiry were due on 1 November, they have yet to be released directly.
However, some of the stakeholders that responded have begun releasing their own submissions, the earliest of which came from Chartered Accountants Australia and New Zealand (CA ANZ), which argued it is “inappropriate” that small financial advice practices should “bear the brunt of the compensation payments” stemming from a large firm’s collapse.
The Financial Services Council (FSC) has now released its submission, setting out a comprehensive list of 20 recommendations to reshape the CSLR into a more workable scheme and attempt to prevent further wealth management collapses from happening in the future.
Among the recommendations is a push for a “one-off injection of government funding to fund claims arising from the Dixon Advisory collapse”.
As the FSC points out in its submission, the original plan for the CSLR was that the government would cover the first year of the scheme, beginning on 1 July 2023, while the 10 largest banking and general/life insurance groups would cover the pre-CSLR levy period.
This figure was set at $241 million, of which $203 million was earmarked for Dixon claims, however, delays to the start date of the CSLR officially kicking off, while not delaying when the second levy period would begin, meant the government only covered the cost of three months of the scheme.
“However, complaints against Dixon continued to be received after the pre-CSLR levy period. This was anticipated by Treasury. Documents released under freedom of information processes indicate the government nonetheless decided to retain the cut-off date of 7 September 2022 for the pre-CSLR levy period when designing the final version of the CSLR bills,” the FSC said.
“By 30 June 2024, AFCA had registered a total of over 2,773 complaints against Dixon, meaning an additional 1,135 complaints had been received since 8 September 2022. Since the pre-CSLR levy had been designed to raise funds for complaints lodged no later than 7 September 2022, the funds raised by the pre-CSLR levy are not expected to sufficiently fund the new complaints, a high share of which are – based on previous actuarial estimates – expected to be eligible for CSLR compensation.”
The submission added that the government had set a “clear expectation” that most claims related to the Dixon collapse would be covered by the pre-CSLR levy and government funding.
“This expectation was made clear on 8 September 2022,47 and materials released through freedom of information processes show that the Minister was advised by a submission dated 12 August 2022 that it was ‘possible, though unlikely’ Dixon costs end up ‘exceeding $250 million’, which would ‘expose the Government to increased costs in the first levy period (2023‐24)’,” the FSC said.
“Such wording clearly demonstrates the Government intended to contribute to the costs of the Dixon cohort.”
Given delays had pushed Dixon’s complaints into levy periods that the FSC called “technically no longer covered by the Government’s commitment”, there is now an unexpected burden on financial advice licensees.
“As a result of these delays, the prospect of the Government providing financial support to the CSLR to assist with the Dixon cohort appears to have receded. Yet delays had been anticipated by Treasury: advice released under freedom of information laws was that a minimum of eight months would be required after the passage of the CSLR legislation for the scheme to become operational,” the submission added.
“This expectation and its implications for joint government funding of Dixon claims was not made clear to industry.”
While the FSC noted that the CSLR bill’s explanatory memorandum discussed the possibility of “black swan” events and thus required the need for ministerial discretion in exceeding the subsector caps, it argued the mechanism was never intended to be used to fund Dixon claims.
“A historical company collapse which predates the existence of the CSLR itself cannot be construed as an unanticipated ‘black swan’ event,” the FSC said.
“In light of the Government’s previous representations about contributing to the CSLR during its first year of operation, the FSC strongly supports a one-off Government contribution to the CSLR to resolve legacy Dixon issues and place the CSLR on a sustainable, future-focused foundation.
“This will be essential for the CSLR to face anticipated future challenges, such as the United Global Capital cohort (whose status is indeterminate as at the date of this submission).”
There is no point in saying ‘advisers not to pay’ because it is the licensee that pays the bill and then takes it from the adviser.
we need another campaign from EVERY adviser AND everyone of our clients to sign. telling the government to back date the legislation as intended.
Everyone in the industry and in Canberra know this is a massive Rort.
But as long as the bureaucrats in Canberra look after themselves first, nothing will change.
Advisers need to take a stand and refuse to pay.
Let ASIC & Canberra attempt to shit us all down
The problem is, they will happily get rid of us all and get the banks back in with “qualified advisers” to push their products. Threatening to walk isn’t going to scare them
Reading this makes me want to become a fully qualified adviser again…NOT
What a shambles this great profession has become all due to misguided government interventions!
I feel for the hard working advisers that remain this must be a difficult period to navigate until the tide turns back in your favour so stay strong and keep up the good work you do for so many Australians every day.
Every Dixon client should sue their financial adviser personally, because putting all eggs into a Texas USA Residential Property Fund was not investing – it was simply stupid – the adviser would have known it was stupid, so each financial adviser should get asset stripped of personal assets and have a personal CSLR debt to Commonwealth Treasury for the rest of their life, not the industry of advisers, who have done nothing wrong.
What if the adviser’s licensee told them to do so? Bearing in mind the licensee is the one that provides research and guidance on products, and enforces compliance with the law. It is entirely possible the licensee could have failed an adviser’s compliance audit and made a breach report about them to ASIC, if the adviser refused to recommend that fund as instructed by the licensee. 100% of the power in licensed financial advice lies with the licensee, not the adviser.
The real underlying problem is a structural failure of the licensing model which allows product companies to be advice licensees.
By all means Dixon clients should sue. But they should be suing the directors and executives of Dixons and Evans & Partners. They should also be suing halfwit Hayne, for not fixing such an obvious structural problem when he had the opportunity and responsibility to do so.
Seriously ? You think a license holder to blackmail financial advisers ? And if an adviser has done the right thing , why would you be scared of ASIC ?
Not diversifying assets is not acting in the best interest of the clients . These advisers SHOULD be held accountable. . Plus other relevant parties who should be held responsible for this mess !
How do you rate Industry Super’s investment strategy?
Licence holders blackmail their advisers all the time. And ASIC persecutes innocent advisers all the time.
Honest, professional advisers live in fear of both their licensee and ASIC. The system is completely rotten.
100%
So the government knew the state of the Dixons claims then wriggled out of paying anything and left the bill for advisers to pay. Was this deliberate? Was this why Dixons was the only retrospective claim for the CSLR?
There can be NO justification for the profession footing the bill for the unscrupulous practices of a large advice firm while their listed parent gets away “scot free”. The system was never designed to do that.