The Financial Services Council has called for the government to fund all claims that resulted from the failures of Dixon Advisory.
In its submission to the Treasury review of the Compensation Scheme of Last Resort, the FSC said it supports a one-off injection of government funding to fund claims arising from the Dixon Advisory collapse.
When the CSLR commenced operations in 2024, it was believed the government would fund the scheme’s first full year, but instead only funded the last quarter of the financial year.
This left the financial advice sector responsible for funding the CSLR from that point onwards which totalled $18.5 million for FY25 and mostly consisted of Dixon-related complaints.
Evans and Partners Financial Group, under former chief executive Peter Anderson, placed the Dixon Advisory subsidiary into voluntary administration due to mounting legal liabilities meaning much of the remediation from AFCA determinations would go to the CSLR instead of being covered by the parent company.
With the influx of complaints to the Australian Financial Complaints Authority, the CSLR estimates for FY26 and FY27 have blasted past the $20 million subsector cap.
CSLR chief executive David Berry announced a FY26 levy estimate of $70 million, which triggered the government to call the review into the scheme. The FY27 estimate was even greater, at around $123 million for the advice sector.
The review was commenced by former Minister for Financial Services Stephen Jones, but it will be up to his successor, Daniel Mulino, to implement any changes to the scheme.
The FSC submission also recommended Treasury consider reducing the $150,000 cap on CSLR claims.
At the Professional Planner Licensee Summit earlier this week, during a table discussion on how the scheme could be sustainable, one participant suggested reducing the $150,000 cap to $100,000 in order to reduce the high levies.
‘Hypothetical’ capital gains
The FSC submission also recommended “excluding hypothetical capital gains from being compensable under the CSLR”, alluding to AFCA’s ‘but for’ method in assessing determinations which meant clients could be awarded compensation even if they don’t suffer capital loss.
At the beginning of the year, Berry said AFCA’s highly controversial ‘but for’ methodology made up approximately 80 per cent of CSLR claims.
AFCA lead ombudsman Shail Singh has repeatedly defended the methodology, saying it is based in sound legal precedent, but critics of the methodology believe the scheme should only be used by people who have suffered genuine capital loss.
The methodology assesses client losses under the view that “but for” the advice given what position would the adviser have been in.
Lowering admin costs
The submission also recommended AFCA “urgently and significantly” reduce its high administrative costs, another financial burden placed on the CSLR and therefore the advisers.
“The FSC recommends that investigations be undertaken to improve efficiency of AFCA’s decision-making processes,” the submission said.
The FSC called for a review of AFCA to be undertaken to locate measures to increase its efficiency and analyse what is contributing to the numerous unpaid AFCA determinations.
Additionally, the FSC recommends AFCA “increase its transparency, especially on the level, quantum and calculation of unpaid fees attributed to the CSLR”.
