Opposition hammers govt on ‘maladministration’ of CSLR

The federal opposition has accused the government of “maladministration” over the Compensation Scheme of Last Resort, after cost blowouts from Dixon Advisory victim remediation led to a successful industry campaign for an inquiry into the collapse of the disgraced vertically integrated firm.

One Nation Senator Pauline Hanson secured a motion to launch an inquiry into the collapse of Dixon through the Senate Economics Committee.

Opposition Minister for Financial Services Luke Howarth said the Coalition supported a “fairer and more sustainable” CSLR, hammering the government for the current design of the scheme.

“The need for this inquiry highlights the Albanese Government’s poor implementation and maladministration of their Compensation Scheme of Last Resort,” Howarth said.

“The proposed inquiry should focus on how to achieve this aim, how the errors in the government’s design of the scheme can be corrected, and how the scheme’s costs, which are ultimately passed on to consumers, can be brought down as quickly as possible.”

Howarth told an industry event in July the opposition would strongly consider halving the $20 million annual sub-sector cap levied on the advice profession, inline with what was proposed in the Coalition’s bill.

Additionally, Howarth once again took aim at Minister for Financial Services Stephen Jones’ slow response to the Quality of Advice Review and inaction over the rising costs of the ASIC and CSLR levies.

“Financial planners and advisers are hurting at a time when they should be focused on rebuilding their industry and helping Australians who are currently under-advised and under-insured,” Howarth said.

“Financial advisers were promised red-tape-reducing reforms by this government but 640 days have now passed since Michelle Levy handed the Government her Quality of Advice Review’s final report, with little progress made on its implementation.”

Dixon’s collapse – and the implications it has on the CSLR – has created blowback from the industry due to the unfairness of paying remediation for the misconduct of others.

AFCA ruled Dixon an advice failure in its lead determination because the firm failed to provide appropriate financial advice and act in its clients’ best interests.

The Federal Court handed Dixon Advisory a $7.2 million penalty following legal proceedings commenced by ASIC for failing to give advice in the best interests of clients, largely because of a lack of diversification; and for failing to consider the full circumstances of clients.

It was the commencement of that legal action, along with other mounting liabilities such as a class action suit, that led to Dixon to enter voluntary administration with clients transferred to other businesses owned by parent company Evans & Partners.

But the root cause that led to the downfall of Dixon was the underperformance of the US Masters Residential Fund, setting up a debate over whether its victims suffered losses because of product failure or poor advice.

Although the industry has expressed support for the CSLR, who should be required to foot the bill had always been a point of contention.

During hearings over the bill when the Coalition held government, the Stockbrokers and Investment Advisers Association and Financial Services Council made identical arguments that none of their members were responsible for unpaid AFCA determinations and, thus, shouldn’t be required to be part of the scheme.

Then-Minister for Financial Services Jane Hume said the scheme was designed to help victims of bad financial advice when the “adviser had closed up shop and flown off to Mallorca” as opposed to covering investment losses.

Treasury analysis claimed 90 per cent of unpaid compensation claims stemmed from financial advice. Furthermore, it’s rare for larger institutions like banks and super funds to become insolvent, meaning they would always be able to fund remediation.

Labor argued heavily for Managed Investment Schemes to be included the scheme, but backed down once in government, instead launching the MIS review.

However, the 10 largest institutions had still been roped into paying a $241 million pre-CSLR levy, while the government was due to pay the first year of the scheme with industry taking over thereafter.

But the government only paid for the first three months of the scheme, which commenced in the final quarter of FY24.

In an interview with Professional Planner for the Shape of Advice podcast, Jones dismissed the notion the scheme would work better if MIS were included in the scheme because the collective liabilities to be covered would be much broader.

“There is a lot of evidence to suggest the opposite would be the case, because look at the failures and collapses over the last decade,” Jones told the podcast.

“They haven’t been in the prudentially regulated sector…arguably you would be bringing in a much bigger potential liability to distributed.”