ASIC’s Dixon Advisory complaints call highlights 'urgent' need for CSLR

A broad-based Compensation Scheme of Last Resort (CSLR) must be "urgently established" in the wake of ASIC's Dixon Advisory complaints call, according to the Financial Planning Association of Australia (FPA).

Earlier this month, the corporate regulator urged former clients of Dixon Advisory & Superannuation Services (Dixon Advisory) — now in administration — to lodge complaints to the Australian Financial Complaints Authority (AFCA) as they may be eligible under the potential CSLR but warned that they will "need to take action as soon as possible" as it is not yet established.

This week, FPA CEO Sarah Abood called for an "urgent" establishment of the CSLR.

"Yet the drafting we saw in the previous term of government, which lapsed in April this year, would not have covered managed investment schemes (MISs)," Ms Abood said.

"This would leave financial planners to foot most of the bill for a scheme that would have left the majority of affected consumers unprotected. For example, most of the victims of the Sterling Group collapse would not be covered under the draft scheme."

Ms Abood noted that currently there is $3.7 million in unpaid AFCA determinations relating to financial advice due to insolvency, while MIS operators have $6.4 million outstanding against them. She said this is highlights that the CSLR must be expanded "to achieve its aims of ensuring that victims of financial misconduct can be compensated where the firm involved has become insolvent".

“It’s also critical that the scheme be funded equitably, so that the current smaller number of financial planners — many of whom are small business operators — are not left bearing the full costs," Ms Abood said.

“While it was in Opposition, Labor suggested amendments which would include MISs in the scheme, and we look forward to seeing these changes implemented now they are in government.

“We continue to work constructively with the government, consumers and other stakeholders in the sector to deliver certainty and fairness for the financial planning profession and ensure consumers can have trust in the financial system.”

In relation to Dixon Advisory, the firm filed for voluntary administration in January and had its AFS licence suspended in April. However, AFCA will accept and register complaints lodged against Dixon Advisory "while it remains a member" and will pause any further handling of the complaints for a number of reasons, including the outcome of the administration process, potential class action litigation, and whether a CSLR is established.

The move comes after it filed for voluntary administration in January with E&P Financial Group directors saying at the time that it “determined that mounting and actual potential liabilities mean it is likely to become insolvent at some future time”.

The actual or potential liabilities relate to possible damages from proceedings that include a class action lodged by Piper Alderman last November which alleged that "Dixon Advisory failed to act in the best interests of clients after its investment committee reviewed, approved and recommended which products were to be pushed on to group members" whom Dixon Advisory stood to earn millions in fees from.

The liabilities also relate to claims against Dixon Advisory by the Australian Financial Complaints Authority (AFCA) and penalties by ASIC.

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.