E&P sees Dixon in rearview mirror while advisers foot the bill

E&P Financial Group chief executive Ben Keeble expressed satisfaction at the company’s full-year results announcement on Thursday morning that it had put behind it the “legacy issues” associated with its subsidiary in administration, Dixon Advisory.

In its FY24 results, E&P noted the class action filed by Shine Lawyers had been settled on 17 April with no further admission of liability. “As a result, there are no remaining contingent liabilities related to this matter,” the company said.

E&P may have put the issues behind it, but the issue remains very much in front of the clients of the defunct and disgraced Dixon Advisory now seeking compensation for the advice they received.

Of course, the cost of the compensation will be borne by all advisers and licensees operating in the market today, via a levy to fund the Compensation Scheme of Last Resort.

E&P and its advisers may have to pay a share, but that’s a tiny fraction of the hundreds of millions of dollars lost by Dixon clients.

During a webcast to announce the results it was not possible to ask Keeble or E&P chief financial officer Robert Darwell any questions. This was apparently an intentional feature of the webcast and E&P’s representatives told Professional Planner that if analysts, investors or other attendees wanted to ask questions they should have dialled in by phone instead.

There were no questions at all at the end of the presentation from either webcast or telephone participants – just half a minute of silence after questions were called – so it’s possible this wasn’t fully understood by many participants.

Intentional or not, it meant wasn’t possible to ask what E&P had to say to the licensees and advisers who are being forced to carry the can for the conduct of its defunct and disgraced advice business.

It wasn’t possible to ask how E&P’s actions in relation to Dixon and its clients align with its stated values of putting “clients’ interests first”, and being “ethical and always act[ing] with integrity”. These values were spoken about quote a bit during the webcast.

And it wasn’t possible to ask what E&P would say to its current clients about whether the firm would follow the same course of action were similar trouble to arise in future.

And that’s a pity, because they’re questions worth asking. They have subsequently been put to E&P, but at the time of writing Professional Planner had not received a response.

In a separate webcast on Thursday, Financial Advice Association CEO Sarah Abood described the CSLR funding model as “absolutely diabolical” and said FAAA members don’t see the argument for compensating the failures of large, listed companies.

“That is, without a doubt, the biggest issue that members are concerned about,” Abood said.

Some groups, like the Principals’ Community, have argued making CSLR payments under protest.

E&P drove through a massive loophole in the design of the CSLR, a route followed more recently by another ASX-listed wealth manager Sequoia when it placed its Libertas licensee into administration. It’s a route that others can follow at will.

Sequoia chief executive Gary Crole did at least speak about the issue when he told Professional Planner that “any criticism must be aimed at those who drafted and implemented the CSLR”.

Crole is correct. Neither E&P nor Sequoia has done anything illegal, and arguably they’ve acted in the interests of their respective shareholders. It’s the scheme design that’s at fault, but it still takes a deliberate decision to exploit it.

The CSLR covers unpaid advice determinations, but not losses incurred in managed investment schemes.

Abood told the FAAA webinar yesterday that while AFCA determined the Dixon issue to be an advice failure “no adviser, at least so far, has been prosecuted”.

ASIC deputy chair Sarah Court said during a parliamentary hearing in June that the regulator chose not to go after any advisers because Dixon was the holder of the AFSL and liable for the advice. Court didn’t give any more context than that, claiming the matter occurred before her time at the regulator.

The FAAA has pushed for a public inquiry into Dixon Advisory and has tried to gain access to court documents regarding settlements, which the association said have been suppressed.

The association had met with the minister on 14 August to further discuss the viability of the funding model of the scheme. Abood said getting the meeting was result of a strong letter-writing campaign by advisers in which more than 2700 letters were sent to members of parliament.

“They have had a real impact,” Abood said.

There is zero prospect of any flaws in the scheme design being addressed in the term of the current government (it’s touch-and-go whether even Tranche 2 of the Delivering Better Financial Outcomes legislation will make it), so it’s a loophole that will remain open and very much exploitable for the foreseeable future.

And every time something like this happens its advisers and businesses not at fault who foot the bill. That’s the nature of an industry funding model, particularly an “absolutely diabolical” one, and it’s easy to see why advisers are livid.