Misconduct ‘not slowing down’: CSLR impact of smaller-scale advice failures

There is a range of misconduct that has caused smaller advice firms to rack up significant numbers of complaints to the Australian Financial Complaints Authority (AFCA) – thankfully, only one adviser’s actions relate to theft and gambling losses.

Speaking with ifa, Compensation Scheme of Last Resort (CSLR) chief executive David Berry said it was “disappointing” that the failures are continuing to take place.

“I just don’t know why there’s so much coming out now,” Berry said.

“Our expectation had always been with all of the regulatory change and oversight and education requirements that was going into this space, that we’d be on a positive trajectory where we would see less and less.

“Our ultimate objective is that there’s no need for a scheme like us, that we’re more a token – that would be our best-case scenario. We just don’t see that happening anytime soon.”

He added that part of the CSLR’s focus has been on trying to highlight that it’s not just the large-scale failures – instances such as Dixon and United Global Capital – that are taking a toll.

“[Failures] don’t need to be hundreds of millions of dollars to have an impact,” Berry said.

“But the number of firms that are failing and the impact of any eligible misconduct is just not slowing down, and I’ve highlighted this to both the minister and the shadow minister. From what we can see, this mountain of claims that will be eligible is getting bigger and not smaller.

“With the requirement for an AFCA determination before being considered by the CSLR for compensation, the number of claims paid is dependent on AFCA’s capacity. With the volume of potentially eligible complaints remaining high, we expect it will take AFCA some time to work through the work relating to current known firms.”

Grouped under the category of “Other Personal Financial Advice” in the CSLR’s revised estimate for FY2025-26 is a list of six insolvent firms that have seen a combined 187 complaints lodged with AFCA.

Looking at just FY25–26, the revised estimate for this category increased from 28 claims and $2.77 million to 101 at a cost of $9.13 million – almost as costly as the Dixon Advisory claims outstanding in FY25–26.

Throw in the $2.09 million in AFCA fees attributed to these determinations and even without the large financial failures, the personal advice subsector would clear the originally planned $10 million cap.

On the ‘watch list’

According to Berry, these firms – APT Strategy, Next Generation Advice, Suetonius Wealth Management, Wealth Trail, Wise Investment Advisers, and Octillion Partners – are part of a “watch list”.

“We’ve got firms on there where we are yet to see claims but believe they’re coming, we just don’t know what they’re going to be,” he said.

“Things like Brite at the moment is in our ‘massive’ watch list, the impact of Shield Master Fund and First Guardian are also in that watch list. With Venture Egg now coming along with all other firms on our potential watch list, we’ll just continue to watch how many complaints AFCA are getting and what the size of those expected losses could be.”

When the smaller firms find their way onto the watch list, Berry added that they have the potential to “creep from being ‘material’ to ‘significant’ – and then we get the surprises”.

APT Strategy, for instance, has had a total of 59 complaints lodged with AFCA.

The firm, which went into liquidation in February 2024, has been caught up with Australian Fiduciaries Ltd and also had Compare Your Super as a corporate authorised representative.

The super comparison service that allegedly funnelled leads to APT Strategy went into liquidation November 2023, while ASIC has secured asset preservation orders against Australian Fiduciaries.

AFCA determinations related to APT Strategy – of which only three have so far been published – have all gone against the firm. They also all involve poor SMSF rollover advice and claims in excess of the CSLR’s $150,000 cap.

Next Generation Advice, which has the distinction of being connected to both the Shield and UGC collapses, so far only has a single determination against it published – awarding more than $250,000 to the complainant as a result of advice to invest in UGC’s Global Capital Property Fund.

Suetonius Wealth Management is yet to see any determinations published; however, ASIC has permanently banned its former director and responsible manager, Peter Surtenich.

Surtenich had recommended to at least 18 clients that they invest in a “Principal-protected Private Placement Program” that offered “high yield” returns, according to the regulator.

ASIC added that he had made dishonest representations that the investment was “capital protected”, was “similar to” a cash investment, and could generate high returns.

Former financial adviser Bruce Stuart Davis, who was the sole director, responsible manager and financial adviser of Wise Investment Advisers, has also been banned by ASIC – though only for seven years.

It largely related to misleading and deceptive representations to clients regarding the high returns they would achieve from his recommendations and trading.

Meanwhile, Octillion Partners had its licence cancelled thanks to the conduct of financial adviser Shane Allan Rose, who engaged in dishonest conduct by using client invested funds for purposes other than which they were given.