CSLR controversy: Will the scheme bankrupt advisers?

As reported on Wednesday, ifa has learnt that a letter has been distributed to advisers by adviser networks for onward transmission to their parliamentary representatives to protest the government’s mismanagement of advice legislation and regulation.

The letter delineates “recent actions and proposed legislation” that, it asserts, contradict the government’s professed goals of enhancing the affordability and accessibility of financial advice, instead resulting in “significant cost increases for consumers and further restricting access to professional advice”.

These actions include the Compensation Scheme of Last Resort (CSLR) levy, to which the letter says, “Assistant Treasurer Stephen Jones appears indifferent”.

Yes, Jones has kept his mouth firmly sealed on the CSLR since mid-May when he told ifa: “The CSLR is being implemented as legislated last year with bipartisan support after almost a decade of consultation and discussion.”

Although he did not directly answer ifa’s questions about whether he intends to review the CSLR burden on advisers, ifa deduced that the minister does not plan to make any changes.

Speaking at ifa’s Adviser Innovation Summit on Tuesday, the CEO of the Financial Advice Association Australia (FAAA) said the association too is launching a campaign to protest the CSLR.

“It’s really important for us to make a stand on this,” Sarah Abood said.

“This is something we’re angry about, and we have launched a member campaign, so for any members in the room, there’s a campaign. If you send a note to [email protected], we can include you in the campaign. It’s likely to start with engaging with your local member and letter writing and it will go on from there.

“I think it’s important that we, as a profession, get together and make sure this thing is put on a sustainable footing.”

What concerns Abood the most is that the parent company of Dixon Advisory, E&P, which earned over $174 million in revenue last financial year, escaped the problem scot-free. To make matters even more absurd, E&P’s licensee, Evans and Partners, where many of the Dixon clients and advisers migrated, continues to operate the US Masters Residential Property Fund (URF)—the very product that played a huge role in this scandal.

“The issues there is that this large listed group has been able to cut that entity lose and continue operating, and leave us with the bill, that is what absolutely infuriates our members,” Abood said.

“How can that be right? How can that be allowed to happen? And if we do allow it to happen, nothing stops the next group that has a problem doing exactly the same thing.”

Ultimately, Abood fears that the CSLR could become “so unsustainable” that it bankrupts the advice profession.

“It’s unfair and it’s unsustainable," Abood added.

Conflict of interest?

The CSLR was also discussed at this week’s Senate economics hearing, where Senator Andrew Bragg asked members of AFCA how many of the Dixon victims were former treasury officials, to which Justin Untersteiner, the authority’s COO, responded, “we don’t know.”

Bragg clarified that several treasury officials had to declare a conflict of interest, adding that Dixon was "a Canberra business."

“I think that there is a sense that there were a lot of former Commonwealth public servants that may have lost a lot of money and this Dixon Advisory organization has been treated in a very different way to many of these collapses.”

Also present at the hearing was ASIC Deputy Chair Sarah Court, who was asked by Bragg why E&P was not held accountable for Dixon's failings.

Court said: “Unfortunately, the way that our laws work is that we have to deal with the company or entity that is actually engaged in the conduct and there was no evidence that we could ascertain that Evans and Partners was involved in the conduct that was done by Dixon and its advisers.”

As for why the corporate regulator didn’t go after the advisers employed by Dixon, Court said: “Dixon has the responsibility for ensuring that those that are operating under its licence are doing so in full compliance with corporations law”.