Will AFCA’s Dixon decision offer any relief to advisers?

On Wednesday, the Australian Financial Complaints Authority (AFCA) announced that it intends to expel Dixon Advisory from its membership of the external dispute resolution scheme.

The end date for Dixon’s membership in AFCA would be 30 June, finally putting a definitive stop to impacted consumers’ ability to lodge a claim.

In cancelling Dixon Advisory’s Australian Financial Services Licence (AFSL) in April 2023, the Australian Securities and Investments Commission (ASIC) had required it to remain an AFCA scheme member until at least 8 April 2024. That requirement has now expired.

So, how much is this actually going to ‘save’ advisers?

An update from AFCA earlier in May noted that a further 544 complaints about Dixon Advisory had been made between 15 February and 30 April, adding an estimated additional burden of about $65 million on the financial advice profession.

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

However, this is just the impact of the complaints that were lodged by 30 April, not those that may be made in the period to 30 June.

According to estimates from the administrator of Dixon, there were a total of 4,606 investors that could make a potential claim based on losses in the associated URF fund. Of these, 2,492 have lodged a complaint to AFCA, leaving 2,114 potential claims remaining.

That number is what sparked the FAAA’s continued calls for Dixon’s membership of AFCA to end, given the advice profession is already on the hook for 853 claims for a total of more than $100 million – the figure left after the 10 largest institutions pay their slice.

Speaking with ifa, FAAA chief executive Sarah Abood said the surprisingly large amount of complaints is a concern. “There’s clearly a lot still coming in. Our advocacy with AFCA was very strongly that consumers have had ample time to complain,” Abood said.

Using the administrator’s estimates, the claims yet to be made – the potential 2,114 – would add up to around $250 million, though it is important to note this is a worst-case scenario that no one believes is a likely outcome.

Abood added: “Of course, not all claims will be accepted, and it might be a fair inference that later claims might, on average, be less likely to succeed than earlier ones – however, we don’t have any data yet on the success rate of these claims.”

The FAAA told ifa that the rough estimate “based on the monthly run rate for that most recent period” for claims up until Dixon’s membership officially ends could be 200, which “could be another $24 million, taking the total amount the advice sector might pay for Dixons to a bit under $130 million”.

“We will know on 1 July how many have complained,” Abood noted.

“There’s so much uncertainty, because we are assuming that all of those complaints will be successful, but there’s a lot of guesswork involved.”

‘It’s unbelievable’

This isn’t the end of the line for the CSLR, with the claims still needing to be processed and the spectre of years of payments still likely.

“What we’re talking about is what happens in the next four or five years,” Abood said.

“We could be paying this for a very long time if the minister decides to spread the cost out. We don’t have any insight into how this will play out going forward.”

Financial Services Minister Stephen Jones has a variety of options available to him should a levy exceed the $20 million sector cap.

“He’s got power up to $250 million total spend to levy as he wishes,” FAAA general manager policy, advocacy and standards, Phil Anderson previously told ifa.

“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.”

This is just one of the “many issues” the FAAA has with how the scheme has been handled, including the role of Dixon parent company Evans and Partners (E&P).

“When this compensation is paid, much of it will go to E&P as they still have many of these clients on the books,” Abood said.

“It’s certainly what makes me the angriest, that advisers are on the hook for the failings of a listed entity.

“It’s unbelievable.”

She explained that by not including managed investment schemes (MISs) in the CSLR, “every failure becomes an advice failure”.

“I’m worried about what that will do to the reputation of advice. It’s critical that MISs are in the scope,” Abood said.

“There are implications for consumers as well, and how advisers will respond. Some advisers may say this is the straw that breaks the camel’s back and they end up leaving. The more advisers that leave, the more it will cost those that remain.

“If it isn’t dealt with, then there will be nobody left.”

Association of Independent Financial Professionals (AIOFP) executive director Peter Johnston said that while he believes AFCA had “no choice but to terminate” Dixon’s membership, it has done little to temper adviser anger.

“Unfortunately, however, this does not terminate the liability the advice community has been unfairly burdened with thanks to the political manipulation of commissioner Hayne’s original CSLR intentions by both sides of politics since 2019,” Johnston told ifa.

“We have not witnessed such levels of anger since FASEA and LIF was legislated, this just demonstrates how removed legislators are from the coalface of advice and consumers. Something has to eventually give, and leading into the next election will provide that opportunity to vent our frustrations – watch this space.”

Ultimately, regardless of how much comes of the total potential bill, advisers will not be saving any money, the amount that they are unfairly being charged may just end up being a little smaller.