The Financial Advice Association Australia (FAAA) has called for the Compensation Scheme of Last Resort (CSLR) to be revised to prevent failed companies with complaints against them using bankruptcy to avoid paying compensation claims.
FAAA made the call as part of a submission to the Senate Economics Reference Committee Inquiry into Wealth Management Companies, which is examining the collapse of these firms and the impact on the CLSR.
The establishment of the inquiry was driven by the FAAA, which has been vocal about the failure of Dixon Advisory and the cost of related client compensation that will be funded by its members via the CSLR.
In making the call, the association noted in its submission: “There are insufficient obstacles to prevent a listed company from ‘phoenixing’ an advice subsidiary and distancing itself from responsibility to compensate consumers for wrongdoing.
“We would like to see an amendment to the legislation with respect to the setting of the CSLR levy to allow a penalty of some form to be applied against the parent entity of a subsidiary that is placed into administration. This penalty should be attributed against the total levy payable for the relevant sector.
“It is deeply unjust advisers are being asked to fund compensation for the clients of a large listed entity, like E&P Financial Group [the owner of Dixon Advisory], that continues to operate and in fact has retained many of the clients under advice and their associated fees.”
The adviser body also pointed out the Australian Securities and Investments Commission (ASIC) had been informed of problems within the Dixon Advisory business before its collapse, but failed to act in time.
As such, FAAA recommended that where the advice sector has reported an issue to the corporate regulator, and the latter fails to act appropriately, advisers should be indemnified against any related CSLR claims.
It also requested more work be done to ensure greater recovery of funds from Dixon Advisory and its related entities, noting parent company E&P Financial Group was still operating, reported revenue of $173 million in the 2023 financial year and was a member of the Australian Financial Complaints Authority.
“When Dixon Advisory was put into administration, a number of advisers and clients were transferred to another entity in the group. Besides ASIC’s legal action against one Dixon Advisory director alleging failures in directors’ duties, there has been no other director, senior manager or financial adviser prosecuted or banned by ASIC in relation to the product or advice-related issues with this matter.”