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Advisers warn compensation scheme could kill off profession

Advisers say the Compensation Scheme of Last Resort in its current set-up poses an “existential threat” to the profession, in their strongest criticism yet of the financial redress program.

The Financial Advice Association Australia says a further 544 complaints about Dixon Advisory have been made since February 15, generating an estimated additional cost of about $65 million that the advice profession will have to pay.

“This equates to a direct cost to every financial adviser of $4165 on top of what has already been disclosed by the [scheme],” the association said. “This is a huge impost for the financial advice profession that is already dealing with declining numbers and spiralling costs.”

The scheme, which started on April 2, provides up to $150,000 in compensation to eligible consumers who have suffered misconduct by a financial firm, where the firm has not made recompense due to insolvency.

To be eligible, claimants must have experienced financial misconduct – as determined by the Australian Financial Complaints Authority – related to one or more of the products and services covered by the scheme.

Association CEO Sarah Abood says the Dixon Advisory AFCA membership has been extended twice after the business was put into administration more than two years ago.

“We urgently call upon the AFCA board to clarify the process and timing for that membership to end,” she said. “We also urgently, again, call upon the government to review the funding model of the [scheme]. Not only is it completely unfair, but it is also economically impossible, for the small business financial advice sector to underwrite the failures of large listed firms.”

She says financial advisers “should not and ... cannot” pay for the failure of Dixon Advisory.

“It is not too much to say that this matter represents an existential threat to our profession.”