Forum Discussion
Phil-Anderson
Advisely Partner
Advisely PartnerCSLR and the cost of Dixon Advisory
This week has seen a big focus on the CSLR, and particularly the cost to the financial advice profession - $18.6m in 2024/25. The underlying story is the issue of the Dixon Advisory business. At last count, there were 1,948 Dixon Advisory complaints sitting with AFCA. To put this into perspective, AFCA received just 600 advice complaints in the entire 2021/22 year across all entities and less than 500 (excluding Dixon Advisory) in the 2022/23 year. The 10 largest financial institutions in Australia need to pay for the complaints received up to 7 September 2022 (a total of $241m), and the Government and the advice profession share the cost of the remaining 310 cases. And when I say share, I should be clear, the Actuaries appointed by the CSLR suggest that the Government will pay 1 of these matters and the profession the rest. How unfair is that? That is another story!
This actuarial firm have suggested that 95% of the Dixon Advisory complaints are likely to receive a payment from the CSLR. That is a remarkably high percentage, which draws me to the evidence in the first AFCA Dixon Advisory case. The table on page 7 of this determination illustrates the percentage of related party products held by this client (between 54% and 74%). That is an incredibly high percentage.
This case rests upon the issues of compliance with the BID and the client priority rule. Who would believe that it was possible to comply with the obligation to prioritise the interests of the client, when you are recommending such a high allocation to related party products? No one can have products that were that good, and the associates of Dixon Advisory certainly were not. That is why we have this CSLR mess. This brings me to my second point; should small business financial advisers be covering the cost of the CSLR when the problem was caused by the performance of the products of a related entity? Is that entirely or even predominantly an advice problem? I welcome your thoughts on all of this.
- Phil-Anderson
Hi Deb, that is a really good question - is this an advice issue or a product issue? At this stage everything points to it being assessed as an advice issue. The first published case talks to three issues - treating the US property fund as partly growth and partly defensive, an overallocation to property and an excessive amount invested in related party products (>50%). The third issue is probably the biggest issue, and whilst it might hint at some form of influence driving that outcome, how can we prove it? Probably the only thing that AFCA have to go on is the advice file including SoAs, RoAs and file notes. Thus in the absence of any other evidence it looks like it will end up being classified as an entirely advice issue. That is a really rough call, and points to deeper issues in the entire regulatory regime.
- deborah.kent
Advisely Index Top 10
Thanks Phil-Anderson has usual a great summary. Phil as a small Advice firm I do not beleive I and others like me should be paying for the sins of Dixon, why make this retrospective? is it in fact a product failure rather than an Advice failure which if I am right was not considered in the CSLR legislation. I know the FAAA are onto this one lets hope we can get the Government to reconsider their position on this one
- alex.burke
Advisely Team
On your second point, it's oddly fitting that the first (and biggest) contribution to the CSLR's costs has ended up being a perfect representation of the problem with its design – a problem you and others in the industry were very vocal about back when it was first proposed.
It's now a matter of legal record that there were Dixon ARs who did not act in their clients' best interests, but this didn't happen in a vacuum; as you said, they were recommending products from a related entity, and those products received contributions because of that incentive structure.
But at present, the CSLR can't consider the other end of that arrangement – certainly not in terms of a fairer distribution of industry funding obligations, anyway - rainier.reyes
Great points Phil-Anderson - certainly an issue with lots of complexity and room for debate.
I thought you had a great policy question earlier about the LIF Review Peter.Monnock and wondered if you had any thoughts to share on this topic!
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