The Financial Advice Association Australia (FAAA) has called on Assistant Treasurer Stephen Jones to review funding arrangements for the compensation scheme of last resort (CSLR) amid worries about increasing costs from new claims.
Specifically, the industry body highlighted 544 additional complaints had been lodged by victims seeking compensation from Dixon Advisory and Superannuation Services with the Australian Financial Complaints Authority (AFCA) since February 2024.
The surge of complaints since this time is expected to result in an added burden of around $65 million for the financial advice sector, translating to an extra levy of $4165 per adviser in addition to the costs already set by AFCA.
FAAA chief executive Sarah Abood questioned the fairness of expecting individual advisers to fund claims stemming from a case involving a large firm after the association approached Jones for a solution to the rising impost.
“We urgently call upon the government to review the funding model of the CSLR. Not only is it completely unfair, but it is also economically impossible for the small business financial advice sector to underwrite the failures of large listed firms,” she pointed out.
“Why should financial advisers pay for the failure of Dixon Advisory, a subsidiary of the large listed group Evans and Partners, which earned over $174 million in revenue last financial year?
“They should not, and they cannot. It is not too much to say that this matter represents an existential threat to our profession.
“The minister has not yet responded to our many requests for engagement on this matter, and we call upon him again to work with us urgently to find a sustainable solution to this crisis.”
She also reiterated concerns regarding the indefinite extension of Dixon Advisory’s AFCA membership alongside the retroactive application of the CSLR, as it could result in an ongoing funding liability for advisers.
“The Dixon Advisory AFCA membership has already been extended twice and the entity was put into administration over two years ago now. We urgently call upon the AFCA board to clarify the process and timing for that membership to end,” she said.
According to AFCA, Dixon Advisory has retained its membership as the Australian Securities and Investments Commission mandated this condition until at least April 8 this year upon revoking the firm’s Australian financial services licence.