Senate reveals terms for inquiry into Dixon and CSLR

On Friday, the Senate released the finalised terms of reference for its inquiry into the Dixon Advisory debacle, with the collapse of wealth management companies and the Australian Securities and Investments Commission’s (ASIC) response under the microscope.

According to the terms of reference, the focus of the inquiry will more broadly examine the “reasons for the collapse of wealth management companies, and the implications for the establishment of the Compensation Scheme of Last Resort (CSLR) and challenges to its ongoing sustainability, with particular reference to Dixon Advisory & Superannuation Services Pty Limited (Dixon Advisory) as an example”.

The Senate economics references committee will conduct the inquiry, with the reporting date set to be “by the last sitting day of March 2025”. Parliamentary sitting dates for next year have yet to be decided, so it can’t be narrowed down any further at this stage.

There have also not been any deadlines set for submissions to the inquiry or hearing dates locked in.

The terms of reference also set out the specific focus, with the underlying cause of wealth management firms like Dixon collapsing at the top of the list, including “the business model and influence of the sale of related party products, for example the US Master Residential Property Fund”.

It also noted that the inquiry would examine “how the actions of directors of wealth management companies and related entities, senior management and the individual advisers contribute to the collapse of these companies”.

The overall financial services regulatory regime will also be on the agenda, specifically looking at its role in the context of “how matters involving the collapse of an investment product promoted by a vertically integrated business are assessed and how fault is attributed”.

One of the strongest concerns that the advice community has raised relate to the way in which wealth management firms have been placed into administration with clients and advisers then moved across to a related entity for no consideration.

This is exemplified through Dixon parent company E&P transferring around 3,280 of the 4,100 Dixon clients and 39 advisers following the collapse.

The terms of reference noted this issue as part of the inquiry, along with the length of time firms can remain a member of the Australian Financial Complaints Authority.

Looking at the corporate regulator, the inquiry will look to probe ASIC’s role, including providing consumer information and “investigating corporate collapse and the appropriateness of any regulatory intervention that may reduce scale of loss for consumers”, as well as “options for enforcement action, including litigation, that ASIC has available to it in relation to wealth management companies following collapse”.

Finally, the implications of the collapse of wealth management companies on the establishment of the CSLR will also be investigated, including “with respect to design considerations and the potential implications for future matters”.

Last week, Luke Howarth, shadow assistant treasurer and shadow minister for financial services, told ifa that the need for this inquiry “highlights the Albanese government’s poor implementation and maladministration of their Compensation Scheme of Last Resort”.

“The Coalition supports a fairer and more sustainable Compensation Scheme of Last Resort,” Howarth said.

“The proposed inquiry should focus on how to achieve this aim, how the errors in the government’s design of the scheme can be corrected, and how the scheme’s costs, which are ultimately passed on to consumers, can be brought down.

“Financial planners and advisers are hurting at a time when they should be focused on rebuilding their industry and helping Australians who are currently under-advised and under-insured.”

He added that there has been “little progress made” on the implementation of the Quality of Advice Review’s recommendations despite promises to reduce red tape.

“Financial advisers were promised their costs would be brought down by this government,” Howarth said.

“They have failed to deliver this, with ASIC and CSLR levies skyrocketing this year and the government reneging on covering the first 12 months of the scheme’s claims, instead covering just three months and leaving the financial advice sector to pick up the bill.”

The motion for the inquiry was moved in the Senate on Tuesday by Pauline Hanson’s One Nation, with the Financial Advice Association Australia (FAAA) declaring victory for getting an inquiry into the CSLR over the line.

“Today marks a major step forward for our profession, and we want to thank Senator Hanson for her support in seeking transparency and for backing Australia’s small financial advice businesses in proposing this inquiry today,” said the CEO of the FAAA, Sarah Abood.

“An inquiry is essential to understanding the full scope of what went wrong with Dixon Advisory – a scandal involving hundreds of millions in client losses – and to ensure it is not repeated.”