The number of complaints lodged following collapse of Dixon Advisory has been finalised with financial advisers potentially being saddled with compensation costs for more than 1130 cases worth around $135 million.
Data from the Australian Financial Complaints Authority (AFCA), obtained after Dixon Advisory’s membership was canceled, revealed a total of 2773 complaints have been lodged with 1134 cases, or around 40 per cent, likely to be covered by the financial advice profession under the Compensation Scheme of Last Resort (CSLR) totaling $135.471 million in compensation.
Cases received by AFCA prior to 7 September 2022, which currently stand at 1,638, will be funded by top financial institutions regulated by the Australian Prudential Regulatory Authority – excluding superannuation funds, amounting to over $200 million in compensation.
Government funding, which was originally announced as covering the first year of operation of the CSLR, will now only cover just one claim, totaling $147,000.
Financial Advice Association Australia (FAAA) chief executive Sarah Abood noted the figures highlighted the unfairness of the CSLR funding model and once again called for an independent inquiry into why the advice sector should bear the costs of current and future claims under the scheme.
“Now that Dixons’ AFCA membership has finally ceased – after two false deadlines, and almost 2.5 years after being put into administration – we can see the full potential impact of this matter on our profession and the costs we may need to pay for it, via the CSLR,” Abood noted.
“Estimates suggest financial advisers could be forced to pick up as much as $135 million of claims related to Dixon Advisory, whilst the parent company (E & P Financial Group) has settled its class action for around four cents on the dollar, while continuing to operate and advise many of the affected clients.
“This highlights a deep flaw in the CSLR funding model that must be fixed. The Dixons scandal is on such a massive scale that it warrants a public inquiry into the circumstances that led to this failure and recommendations to ensure this cannot happen again.”
She noted that while the total number of cases registered with AFCA is lower than the administrator’s initial estimate of 4,606 investors affected by the collapse of Dixon Advisory, the significant number of complaints will likely take years to process.
To that end, the FAAA recommended several measures to ensure the fairness of the CSLR, including making the funding model prospective and government action to ensure large vertically integrated groups cannot avoid paying compensation to consumers by putting a subsidiary into administration.
“We consider these actions to be urgent in order to secure a sustainable and fair funding base for the CSLR, so that consumers can continue to receive fair compensation if they have suffered a loss due to poor advice,” she said.
