Dixon Advisory CSLR costs could hit advisers for more than $100m

Last week, Financial Advice Association Australia’s (FAAA) chief executive, Sarah Abood, called on Financial Services Minister Stephen Jones to take action on the drastically escalating costs of the Compensation Scheme of Last Resort (CSLR).

An update from the Australian Financial Complaints Authority (AFCA) last week noted a further 544 complaints about Dixon Advisory have been made since 15 February 2024, which means the financial advice profession will have to pay an estimated additional cost of approximately $65 million.

This equates to a direct cost to every financial adviser of $4,165 on top of what has already been disclosed by the CSLR, which the FAAA said is a “huge impost for the financial advice profession that is already dealing with declining numbers and spiralling costs”.

Taking to LinkedIn over the weekend, FAAA general manager policy, advocacy and standards, Phil Anderson, said that the “CSLR and Dixon Advisory debacle has been a progressively exploding disaster”.

“The 10 largest financial institutions in Australia are paying for the first 1,638 Dixon Advisory complaints. The government are ever so generously paying for one of these Dixon cases,” Anderson said on LinkedIn.

“On the basis of the latest set of numbers, that leaves 853 that needs to be paid for by industry. Using the CSLR actuaries assumptions of $107,000 per complaint and $12,000 for [AFCA] claims handling costs for each complaint, that pushes the potential cost to the advice profession above $100 million.

“Yes, $100 million being unfairly forced upon a largely small business sector that has declined by 45 per cent in the last five years.”

Speaking with ifa, Anderson explained that while Dixon Advisory remains an active member of AFCA, all future complaints that come through are potentially going to get picked up by the advice profession.

This would be the “worst-case scenario” because there is a $20 million cap per year per sector.

“There is $18.5 million in the 24–25 year, so that means that the CSLR, on their own, could apply an additional levy of $1.5 million,” he told ifa.

“But when you get to that $20 million levy threshold for a sector, they then have to refer it to the minister and the minister has to make a decision.”

Anderson explained that Minister Jones would have a variety of options available to him to deal with a levy that would exceed the sector cap.

“He’s got power up to $250 million total spend to levy as he wishes,” he said.

“He could attribute all of it to the advice profession. He could spread it over a broader base of sectors above and beyond those who are already covered by the CSLR, or he’s got the option to seemingly have CSLR pay out in instalments, so clients don’t get all of the money they’re entitled to in the one year.”

Reiterating the FAAA’s concerns around Dixon’s continued AFCA membership, Anderson said even before the additional complaints, it was already going to take until March 2026 to process all of the Dixon matters, which will now be extended until the end of 2026 at the earliest.

‘Law reform issue’

In her statement last week, Abood raised the issue of a large entity that was able to mostly escape paying for the failures of a subsidiary.

“Why should financial advisers pay for the failure of Dixon Advisory, a subsidiary of the large listed group Evans and Partners (E&P), which earned over $174 million in revenue last financial year?” she said.

Anderson added that E&P avoiding dealing with the Dixon collapse is “potentially a law reform issue”.

“Our main objection here is, one, just being able to walk away, but it’s what they have walked away from,” he told ifa.

“This is predominantly related to this URF fund which is a related party of Dixon Advisory. There’s a preliminary AFCA case that [has] been released on a Dixon Advisory client, which suggests that this client had between 54 per cent and 75 per cent of their investments in related party products. They also had a significant overexposure to property, and that’s all tied up in this URF.

“This is not about advice that relates to unrelated party products. If it was advice that was related to external products, and something went horribly wrong, then you might question why was the parent company allowed to walk away from it?”

The Dixon situation, Anderson stressed, is far more complex because this is a parent company that has walked away from a subsidiary that had a substantial exposure to a related party product.

“Who benefited from that report related party product? The parent company. So, they’ve got all of the income that they’ve managed out of this URF fund. They haven’t been asked to pay that back. On many different levels, it just seems incredibly unfair,” he said.

Editor's note: An earlier version of this story incorrectly attributed claims handling costs to ASIC instead of AFCA.