The Financial Advice Association Australia (FAAA) has welcomed a proposal by the Australian Financial Complaints Authority (AFCA) to cancel the membership of Dixon Advisory at the end of the current financial year.
FAAA revealed AFCA’s board of directors confirmed the decision in a letter from authority chair Professor John Pollaers to FAAA chair David Sharpe after raising concerns claims related to Dixon Advisory’s misconduct had contributed to an unsustainable levy imposed on advisers under the Compensation Scheme of Last Resort (CSLR).
“The FAAA has been calling for Dixons’ membership of AFCA to be ended for some time. It has been extended twice, despite the fact the company went into administration in January 2022,” FAAA chief executive Sarah Abood stated.
“This meant that complaints by former clients could continue to be made and would continue to be eligible for compensation from the CSLR, considerably increasing the potential cost of the scheme to financial advisers well beyond the actuarial estimates.
“The CSLR has created a situation where companies can simply walk away from a failed subsidiary, leaving the rest of the sector to compensate clients. This is a dangerous precedent and removes the consequences of poor or risk-taking decision-making.
“Ending the membership of Dixon Advisory as proposed, effective on 30 June 2024, represents an appropriate and fair outcome for consumers, providing them with ample time to lodge a claim, as well as recognising that the profession is funding the compensation.”
Abood pointed out approaches to Treasury to clarify the funding arrangements of the CSLR had so far proved fruitless and believed the current model worked against the government’s aim of expanding affordable advice to more Australians.
“It is disappointing that [Financial Services] Minister [Stephen] Jones has not yet responded to the concerns the FAAA has been expressing on behalf of members since before the scheme launched regarding the size and scope of the CSLR and the unsustainable nature of its funding,” she noted.
“Without changes to the funding model, the scheme is likely to further increase the cost of advice – through advisers either passing additional costs through to clients or leaving the profession as a result of increased costs – further exacerbating the current demand/supply imbalance and increasing the costs of those who remain in a vicious cycle.
“We share a common goal with the government: to make high-quality financial advice more affordable and accessible for consumers. The CSLR is one of the biggest threats to this goal and we will continue our campaign to ensure the scheme is set on a sustainable footing.”