In announcing the levy for FY25–26, Compensation Scheme of Last Resort (CSLR) chief executive David Berry said the “key contributors driving the expected number of claims” are UGC and Dixon Advisory.
Indeed, while 92 per cent of expected claims paid for FY25–26 relate to the two failed firms, the impact of UGC on the FY25–26 estimate is far greater at $44.57 million compared with $12.25 million for Dixon.
As previously broken down, the Australian Financial Complaints Authority (AFCA) is not simply ignoring complaints lodged against Dixon Advisory; however, the determinations it makes over the FY25–26 period are largely going to be covering the backlog attributed to the pre-CSLR period that Australia’s 10 largest financial institutions have already paid.
Specifically, the complaints authority, which has a separate team working on Dixon Advisory, will aim to get through the 1,638 complaints that were submitted by 7 September 2022.
“AFCA’s focus will be, in regard to Dixon, all the pre-CSLR complaints, so we won’t see much of the post-September 2022 complaints,” Berry told ifa.
“If they manage to really ramp up and get through the pre-CSLR faster, it means they then start engaging on the post-September 2022 work. Those claims could then come through and that then brings forward claims that we were expecting in FY27 into FY26. We probably won’t have a good view of that come May or June this year, but that’s something that could impact it.”
Looking beyond this upcoming third levy period, Phil Anderson, Financial Advice Association Australia (FAAA) general manager for policy, advocacy and standards, said on a webinar on Tuesday that Dixon will retake the focus in FY26–27.
“There could be $103 million in claim costs for Dixon Advisory clients, and $105–106 million total claim costs plus AFCA fees of $14 million and $3.5 million of additional fees. This is all on the assumption that we don’t see any further material collapses,” Anderson said.
“All up, we could see $123 million in the 26–27 year, and that’s on top of the $70 million that’s already been disclosed. The financial advice sector is only required to pay $20 million in each year. What happens above is up to the minister, and we will be seeking that the minister does not charge any more than $20 million, but he has the power to do so.”
Across the two financial years, the cost of the CSLR levy to the financial advice sector could be as much as $193 million, which represents $12,500 per adviser.
Anderson also noted that there is a real chance that the Dixon mess drags on into the FY27–28 period.
This is in line with what Berry told ifa is a more likely scenario, in which AFCA falls short of the number of determinations it has projected it can complete, leaving some pre-CSLR complaints yet to be completed by the end of FY25–26.
“That won’t really impact the FY26 levy, but it does mean there’s a chance that the FY27 levy won’t see the end of Dixon,” he added.
In an FAAA article, also published on Tuesday, Anderson explained that the cost of AFCA processing the claims is also set to grow, based on the CSLR actuarial report.
“The report estimates that the cost of AFCA processing each claim will increase substantially from an estimate of around $12,450 in the 2024–25 estimate to $21,334 per claim in the 2025–26 year,” Anderson said.
“This is a huge increase and one that AFCA is yet to publicly respond to. This is really bad news for financial advice if it turns out to be correct. Not only will the advice profession need to pay for the AFCA fees for all the post-CSLR Dixon Advisory cases, all the UGC cases and any other financial advice cases; if this significant jump in AFCA fees occurs, then it puts the pre-CSLR total cost at risk.”
The only positive news coming out of the actuarial report, which Anderson said the FAAA was “desperately trying to find”, was that the three-month period that the government covered ended up being even less than expected, leading to a $1.3 million credit towards the financial advice sector’s bill.
“There were no CSLR claims paid in the year that the government was responsible. Isn’t it remarkable that the government committed to pay for the first 12 months of claims and operating costs, however modified the law in a way that led to them only being responsible for three months – and then, in that period, there was not even one claim paid!” Anderson said.
“The $4.8 million that the government paid for the three-month period in the 2023–24 financial year is paltry in comparison to the $70 million that the advice profession is facing for the 2025–26 year, and the potential $123 million that it is facing for the 2026–27 financial year.
“I wonder if the architects of this outcome feel pleased with what they achieved, or embarrassed. One can only hope that they have a conscience.”
What about a class action against ASIC for complete negligence in performing its duty as a regulator? Their job is to “licence and monitor financial services businesses to ensure that they operate efficiently, honestly and fairly”. Great job ASIC. How much knowlege (warnings) did ASIC have before these firms collapsed? It was openly known within the industry that Dixon was an accident waiting to happen.
They talk about this profession taking fees for no advice. This is a joke!! Retirement is looking good.
Just ridiculous. Will drive more advisers out
Seriously, can the advice industry start a class action against Dixon and UGC?
Considering the Dixons complaints revolve around inappropriate asset allocations and investing into a related party, how the hell can AFCA charge $21,334 per claim? That is like having one of their staff spend 3 months on a single case!
In addition, AFCA has doubled the size of its investments and advice decision-making team and increased its case management workforce due to the Dixons fiasco. Why would they do that when there is the possibility that only $20m per year could be paid from the CSLR?
This is a complete joke. Try telling a doctor/lawyer/accountant/builder…etc to pay for someone else mistake, and see what they tell you.
Exactly, what other profession pays for totally unrelated advice / services to their own, that go wrong?
What other profession pays for Product failures that other professionals in their realm have used but they have zero exposure too.
Govt Theft to protect useless ASIC and Corrupt Treasury.