Diving into the Dixon Advisory / CSLR Story

At the FAAA we have been concerned about the potential cost of the CSLR for a long time, however over the course of 2024 we have become increasingly alarmed. The fact that a CSLR would be established was a virtual certainty after the 2017 Ramsay Inquiry and being recommended by the Hayne Royal Commission. The fear was always what would happen if a black swan even occurred, and unfortunately that happened even before the legislation was locked in back in June 2023.

With the responsibility for the pre-CSLR (7 September 2022 cut-off) legacy claims being picked up by the 10 largest financial institutions, the big unknowns were how many of the post 7 September 2022 complaints could be processed and paid out before the 30 June 2024 deadline (for the Government to cover) and how many Dixon Advisory complaints would there be in total.

Unfortunately for the advice profession, both of these key factors were heading in the wrong direction. The delayed start of the CSLR and the huge volume of Dixon Advisory claims, meant that AFCA were simply not able to push out their Dixon Advisory determinations in time, and a delay in the cessation of the Dixon Advisory membership of AFCA lead to a late surge in complaint numbers. CSLR levies are paid in advance and are based on estimates of what is expected to happen in the year ahead. On 18 March 2024, we discovered that the Government would only be paying for one Dixon Advisory claim. Given their previous commitment to pay for the first 12 months of the scheme, including costs and claims, this was terribly disappointing. From 15 February 2024 until the final deadline of 30 June 2024, Dixon Advisory complaints leaped by a remarkable 825 to 2,773. With the CSLR actuaries estimating an average cost of nearly $120,000 per Dixon Advisory claim and the advice profession likely to be on the hook for a total of 1,134 Dixon Advisory claims, the potential cost had skyrocketed to as much as $135 million.

As this has all come to light, we have dug into what happened at Dixon Advisory and how the CSLR legislation has been designed and implemented. Everywhere that we looked, we saw inequity and unfairness. The more we looked, the angrier we got. In the work that we have done we have identified the following six most significant objections:

1.????? E&P Financial Group walking away from its subsidiary Dixon Advisory and leaving virtually the entire mess for the rest of the advice profession to pick up.

2.????? The Government failing to deliver on a commitment of a prospective scheme (in which the financial advice sector would only be expected to pick up the costs of claims after the scheme started), and instead launching the scheme with a massive overhang of legacy compensation to be paid.

3.????? The Government committing to picking up the first 12 months of costs and claims for the CSLR, but then reducing that to less than three months and only covering one Dixon Advisory claim.

4.????? The Government failing to disclose anything about Dixon Advisory or the likely cost in the Explanatory Memorandum to the CSLR legislation, and failing to do a regulation impact statement for the CSLR.

5.????? ASIC failing to take action against Dixon Advisory in a timely manner and then only focussing on advice issues in their ultimate civil penalty action.

6.????? ASIC postponing the end date of Dixon Advisory’s AFCA membership which seemingly has enabled multiple hundreds of extra claims in the final months.

We have documented our objections in as much detail as we could, drawing on source documents where possible. Across three separate papers we will release the detail on the above six objections, starting with the following first part which looks at the E&P Financial Group involvement in this scandal. Please read this first paper through the following link:

?https://faaa.au/wp-content/uploads/2024/07/FAAA_Dixon-Advisory-and-CSLR-Anger-Part-One_-Final.pdf

There will be more to be released over the next few weeks, so keep an eye out.

For more information on the CSLR and the Dixon Advisory scandal, please have a look at the FAAA’s CSLR hub:

https://faaa.au/compensation-scheme-of-last-resort/

In our analysis, we have just scratched the surface. There is so much more that needs to be unearthed, including what really went wrong at Dixon Advisory and how so much money was lost by clients in the E&P Financial Group’s US Masters Residential Property Fund (URF). Getting to the bottom of this will only happen through a public inquiry. We are continuing to call for a public inquiry, and we ask for your support to achieve that.

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