The move from Viridian and CFS to provide personal advice in a scaled manner highlights a growing willingness within the industry to fix its own problems in lieu of waiting for the government.
Private markets are worth around $14 trillion globally, ASIC believes. It’s not sure, and that uncertainty hints at the wider problem – private markets, and their effect on public ones, is still largely a mystery.
Minister turns back on CSLR as AFCA steps in, looks to cut Dixons membership
The Australian Financial Complaints Authority has proposed ending the membership of Dixon Advisory, which would bring to a close the window for ex-clients of the disgraced advisory group to lodge compensation claims that would ultimately be funded by financial advisers.
While AFCA takes action, however, financial services minister Stephen Jones remains mute on pleas for a redesign of the flawed Compensation Scheme of Last Resort, which the Financial Advice Authority of Australia called “economically impossible”.
The FAAA has been lobbying hard against the CSLR from several angles for months while on its national roadshow tour and meeting with financial advisers. Chief executive Sarah Abood says the group supports the scheme “in principle”, yet several aspects of it are unworkable.
The primary issue is the government’s repeated willingness to foist retrospective punishment on good advisers for the misdeeds of the bad. That is, the ‘user pays’ model the scheme is based on means blameless advisers collectively pay compensation for clients of at-fault advisers that have ripped off clients and subsequently gone into administration.
(It’s essentially the same funding model that sees all financial advisers split the regulatory enforcement cost for advisers that have been pursued by the corporate regulator – a model which Treasury has already reviewed and found to be ‘misaligned’.)
Backwards looking and open-ended
The retrospective nature of the CSLR is linked to the FAAA’s campaign to get the complaints authority to cancel the membership of ‘Dixons’. AFCA can only handle complaints of current members, and while Dixons was long ago put into administration AFCA has maintained that it doesn’t meet the pre-requisites for exclusion and twice extended its membership.
“The CSLR has created a situation where companies can simply walk away from a failed subsidiary, leaving the rest of the sector to compensate clients.“
FAAA CEO Sarah Abood
Meanwhile, the Dixons bill has grown. After the group was convicted of breaching best interests duty on dozens of occasions and losing $368 million for 4,606 clients, the initial estimate that advisers would have to pay was $24.1 billion for the 2024/25 financial year, or $1,544 for each of the 15,600 or so advisers left in the industry.
After AFCA subsequently announced it had received an extra 544 complaints from ex-Dixons clients, the estimated bill stretched out a further $4,165 to $5,709 per adviser… with hundreds of potential complaints still to be submitted. The ballooning bill was enough to prompt FAAA chair David Sharpe to say he was “sick of being an adviser ATM machine” at the association’s Sydney roadshow. “Every time there’s a bill, we’re the ones who have to fork it out.”
Long way to go
Assuming it comes to fruition, AFCA’s move to expel Dixons at least puts a cap on the amount advisers will have to pay its aggrieved ex-clients. Ending the membership as proposed, at the end of June, represents what Abood called “an appropriate and fair outcome for consumers, providing them with ample time to lodge a claim, as well as recognising that the profession is funding the compensation”.
The CEO is conscious, however, that putting a lid on the Dixons bill doesn’t fix the inherent flaws of the compensation scheme.
“The FAAA supports the CSLR in principle, however a number of substantial problems remain with the way the scheme has been funded, which threaten its long-term viability,” Abood said.
“The burden should not fall on financial advisers who have done nothing wrong. It is economically impossible for the small business financial advice sector to underwrite the failures of large listed firms.”
A dangerous byproduct of the scheme in its current form is that it encourages firms like Dixons to conduct ‘phoenix’ activities in the future, she added.
“The CSLR has created a situation where companies can simply walk away from a failed subsidiary, leaving the rest of the sector to compensate clients. This is a dangerous precedent and removes the consequences of poor or risk-taking decision making.
“It is disappointing that Minister Jones has not yet responded to the concerns the FAAA has been expressing on behalf of members since before the scheme launched, regarding the size and scope of the CSLR, and the unsustainable nature of its funding.”
