Treasury dodges Bragg’s Dixon questions

In written questions on notice as part of the Senate estimates process, Liberal senator Andrew Bragg directed a series of thorny questions to Treasury regarding the impact of the Dixon Advisory collapse on the construction of the Compensation Scheme of Last Resort (CSLR).

The first of these questions, which were directed to Treasury on 14 June 2024, probed the government's funding of the CSLR.

Between the September 2022 and March 2023 versions of the CSLR legislation, Bragg noted, the first period of the scheme, which was being paid for by the government, was “seemingly reduced from 12 months to just three months”.

“Did Treasury do the analysis on the savings to the government from reducing the first CSLR levy period from 12 months to three months?” Bragg asked.

“What did this analysis suggest that the government would save by passing this cost onto the small business financial advisers who would otherwise carry the cost of this scandal?”

In response, Treasury answered: “No. The first levy period – like the CSLR legislation introduced into the previous Parliament – was subject to passage through Parliament.”

Bragg also asked whether the CSLR bill’s explanatory memorandum made any reference to Dixon Advisory, given more than 1,600 complaints had been made ahead of its drafting, and “If not, then why not?”

“The explanatory memorandum for the CSLR package of bills that were introduced on 8 March 2023 did not include any references to Dixon Advisory or to any of the other insolvent entities,” Treasury said, not providing a response to the senator’s secondary question.

Many of Bragg’s questions mirror concerns that advisers and associations have been raising consistently for months. In April, Financial Advice Association Australia (FAAA) general manager of policy advocacy and standards Phil Anderson took aim at the government’s calculation of the CSLR’s financial impact.

“Look at the explanatory memorandum, the March 2023 bill and the financial impact provides meaningless numbers in terms of what the cost is, whether that’s the cost to the government or its the cost more broadly, those numbers are meaningless,” Anderson said at the time.

“The government also refused to do a regulation impact statement. They relied upon the fact that the financial services royal commission was a process akin to an impact statement, but the royal commission was more than four years beforehand and it was before the Dixon Advisory matter came to light.

“It was not an excuse to avoid the responsibility to do a regulation impact statement, and that left us with very little understanding of what this might mean.”

Pointing directly to this concern and the changing circumstances following the royal commission, Bragg asked: “Who made the decision not to do a Regulation Impact Statement and does Treasury consider this a justifiable outcome in the context of the knowledge at that time of the Dixon Advisory debacle?”

The response from Treasury was again minimal, simply that: “Office of Impact Analysis requirements were met in relation to the CSLR package of bills that were introduced on 8 March 2023.”

Sector cap questions ignored

Treasury was even more evasive when it came to Bragg’s questioning regarding the sector cap increase from $10 million to $20 million, which he noted changed between the “October 2021 version and the September 2022 version” of the CSLR legislation.

“This happened after Dixon Advisory went into administration and a very large number of complaints started to flow in,” Bragg said.

“What was the reason for this increase, and why was it considered necessary?”

Rather than providing a direct answer to the senator’s question, Treasury instead opted to merely describe the sector cap.

“The total amount of annual levy for a sub-sector, for a levy period, cannot exceed the annual sub-sector levy cap of $20 million (or an amount otherwise prescribed for the sub-sector in the regulations). The sub-sector cap levy is intended to provide assurance to relevant industries about the maximum amount expected to be levied against each sub-sector in a levy period,” it said.

Hidden in the parentheses above, however, is that the “amount otherwise prescribed” can significantly exceed the $20 million cap at the minister’s discretion.

Speaking with ifa in May, the FAAA’s Anderson explained that Financial Services Minister Stephen 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.”

Speaking at a Financial Services Council breakfast event in Sydney earlier this month, shadow financial services minister Luke Howarth signalled the Coalition would seek to lower the sector cap to the originally proposed level.

“The other thing around the CSLR is … the original intention was to have it capped at about $10 million per year, rather than the $20 million that it is,” Howarth said.

“But I think the Coalition would look at that, because if you capped it, it would sort of immediately reduce the fees back to about $650 a year, as opposed to what it currently is.”

Impact on advisers

Turning directly to the impact that the Dixon collapse would have on financial advisers through the CSLR, Bragg asked whether Treasury assessed the “worst-case scenario for the financial advice profession” when the legislation was prepared for tabling in March 2023.

While Treasury said it was aware that the backlog of complaints had reached 1,836 when the legislation was prepared, and that 1,638 related to Dixon Advisory, it otherwise noted that the “final backlog figure was to be paid for by the 10 largest eligible financial institutions”.

“The total number of claims and compensation was subject to significant uncertainty,” it added.

In his final question for Treasury, Bragg asked if Treasury thinks it is fair that, through the CSLR, “small business financial advisers are paying such a high price for a listed entity who walked away from their subsidiary and left it to the rest of the sector to pick up the cost”.

“What is your latest estimate of what Dixon Advisory will cost the CSLR in total and for the financial advice sector? Does Treasury think that this outcome warrants law change in either the insolvency laws or the CSLR legislation?” he asked.

Perhaps unsurprisingly, Treasury largely avoided answering the question around fairness and law changes.

“The CSLR is operating in accordance with the law. The CSLR operator is responsible for estimating the cost of the impact of the collapse of Dixon Advisory on the CSLR,” Treasury said.