Sequoia CEO Garry Crole has deflected criticism of Libertas’ impact on the Compensation Scheme of Last Resort, saying any judgement should be directed to the drafters of the scheme.
ASIC cancelled the AFSL of Libertas due to unpaid AFCA determinations that went to the CSLR, but this has created another example of a parent company that has avoided the liability of paying compensation to victims of financial misconduct by a subsidiary.
Sequoia chief executive Garry Crole tells Professional Planner the precedent set by the Libertas situation has been determined by the government through the structure of the CSLR rather than the actions of Sequoia to put the business into administration and pass on the liability of unpaid compensation.
“Any criticism must be aimed at those who drafted and implemented the CSLR,” Crole says.
Crole maintains that the design of the CSLR puts the fiscal responsibility on the shoulders of the profession, increasing costs to financial advisers, and he says he welcomes any changes that would “end in a better outcome for clients, financial advisers and the industry”.
“We are very concerned that the claims from closed or failed licensees are being funded by current and future financial advisers, which…increases the costs to clients,” Crole says.
The parent companies of both Libertas and Dixon Advisory moved advisers and clients from the entities placed into liquidation into different licensees. As a result, they are not liable under the current law for the actions of their subsidiaries.
Crole says Libertas was placed in receivership because the business had ceased and the receiver had been looking to cancel the AFSL for some time prior to the commencement of the CSLR.
“At that time of placing the business in receivership there was no advisers licensed by Libertas nor was there any open complaints against the subsidiary,” Crole says.
“The case where compensation was paid by CSLR had been declined by the case manager at AFCA. The receivers did continue to pay for AFCA membership while in liquidation whilst awaiting ASIC to cancel the AFSL as required.”
The Financial Advice Association recently met with Minister for Financial Services Stephen Jones to advocate for changing the funding model for the scheme, arguing the current set up is unstainable, as well as publicly calling for an inquiry into Dixon.
FAAA general manager for policy Phil Anderson says the Libertas situation is a warning sign that listed companies can easily dodge liability for financial misconduct by putting a subsidiary into administration.
That they were able to do so is “worthy of looking at”, Anderson says. He says it now appears to be an easy out for parent companies wanting to remove themselves from any future responsibility associated with the business in administration.
“It comes back to the CSLR and the way the CSLR has been set up and designed which seemingly facilitates this in allowing those clients to be compensated by other members of the profession, which just seems terribly unfair,” Anderson says.
Without government intervention, the financial advice profession will continue to pay for the failings of businesses they have no association with.
“We have a fundamental problem in the design of the CSLR and we should get it fixed now and not wait for another event [like Dixon Advisory] to occur,” Anderson says.
Anderson raised concerns that in the FY26, the profession is facing a much more substantial liability.
“I could envisage that it could be over 50 million,” he says, which is unsustainable and would be a significant hit to small advice businesses.
The CSLR has a sub-sector cap of $20 million, but the minister has the power to add a “special levy” if need be.
Due to the sheer number of claims against Dixon Advisory that will be compensated by the profession, the amount could be as much as $135 million. Currently, there are more than 2770 claims related to Dixon heading to the CSLR.
“I don’t think the advice profession has the capacity to carry [this] loss,” Anderson says.
“In the absence of intervention by the minister and potentially legislative change, that’s exactly what we’re going to see.”
