The Financial Advice Association Australia (FAAA) has written to all federal members of parliament urging them to support a public inquiry into the collapse of Dixon Advisory and the effect it has had on the Compensation Scheme of Last Resort (CSLR).
The call for a public inquiry comes in response to significant concerns regarding the treatment of Dixon Advisory's collapse, which left thousands of clients with losses potentially up to $400 million due to breaches of the best interests duty by Dixon Advisory and the failure of a related party product known as the URF (US Masters Residential Property Fund).
As much as $135 million of this compensation bill could be charged to the financial advice profession, potentially costing all financial advisers more than $8,000 each, and resulting in further increases to the already high cost of financial advice.
Sarah Abood, CEO for the FAAA, says the association has commenced working with Treasury with the goal to fix some of the issues that have become apparent since the scheme’s inception.
“However, it is essential that we learn the full extent of the issues behind the multi-hundred-million-dollar Dixon Advisory scandal, to ensure it is not repeated.
“A public inquiry would provide clarity around the key questions that remain unanswered, including how the money was lost in the Dixon Advisory scheme, what role directors and senior management played, and why ASIC failed to adequately investigate and take action in a timely way, despite numerous complaints from as early as 2008.”
"There are too many unanswered questions about the collapse of Dixon Advisory and the subsequent impacts on their clients and the advice profession," Phil Anderson, general manager of policy, advocacy and standards said.
"It is crucial that we understand why the fallout from this scandal has focused primarily on financial advisers while leaving the business leaders and their investment product, as well as broader systemic issues and the firm's questionable business model, unaddressed.”
Building on recent advocacy for a fairer scheme, the FAAA met with Minister Stephen Jones in August to raise key concerns regarding the CSLR, including the total cost of the scheme, and whether it is operating as a true last resort.
“The financial advice profession is made up of small business owners, and 92 per cent of advice practices have five or fewer advisers. Our sector simply can’t afford to underwrite the malpractice of large, listed companies, and nor should we,” Ms Abood said.
“This was supposed to be a last resort scheme to compensate Australians who were the victims of poor or negligent financial advice, when all other avenues of restitution had failed. Instead, in the absence of true accountability for those responsible, it’s become a scheme of first resort for the many Australians that were caught up in the Dixon Advisory scandal.
“We owe it to consumers to ensure that the CSLR is fairly and sustainably funded. A public inquiry into what happened at Dixon Advisory is critical, so we can learn the lessons of this failure and ensure it can never happen again.”
