The Financial Advice Association Australia (FAAA) and Australian Financial Complaints Authority (AFCA) are in dispute regarding how much of an industry scandal, such as Dixon Advisory, relates to product failure and how much relates to advice.
Speaking at the FAAA annual conference in Brisbane, FAAA chief executive Sarah Abood lamented how the financial advice sector is being forced to bear the brunt of compensation regarding Dixon Advisory, stating “a temptation to blame” advisers exists among the wider financial services industry.
Her colleague, Phil Anderson, FAAA general manager for policy, advocacy and standards, also called for the compensation funding of Dixon to be shared by the wider professions in an earlier conference session.
He said: “The losses that we are paying for are not just advice-related, they are much broader than this.
“The business model was that decisions were made about how much each client would invest by an investment management committee, not by the individual adviser; this was an organised process of forcing clients to effectively invest in an in-house product.
“This is much bigger than an advice issue.”
However, in its submission to the Senate economics references committee inquiry into wealth management companies, AFCA was adamant that the fault in cases lay with the adviser.
It has received over 2,700 complaints about Dixon Advisory and 129 regarding the United Global Capital (UGC), with the potential for further UGC complaints to be submitted before its AFCA membership expires on 31 May 2025.
Both of these will have to be funded by the Compensation Scheme of Last Resort (CSLR) as the companies have since fallen into liquidation.
Referencing such matters, AFCA said: “To be clear, even though these matters all related to a failed product, the failings were in the advice process.
“For complaints AFCA receives about advice to invest in a failed product, AFCA will consider whether the advice met the standards prescribed in the law, that is, whether that advice was in the best interests of the client. AFCA will then consider, as a separate issue, whether the failure caused loss to the client and whether it is fair in all the circumstances having regard to the law, the actions of the product provider and adviser to attribute all or part of the loss to the advice firm.
“Financial advice firms can limit their liability in any complaint about financial advice by ensuring the advice they give complies with their obligation to provide advice that is in the best interests of their clients, is appropriate to their client’s needs and objectives, and prioritises their client’s interest ahead of their own.”
If there is evidence in product failure that another firm contributed to the loss, AFCA said it may join that firm to the complaint. In these circumstances, the liability of one firm may be reduced where AFCA considers the other firms share some liability for the conduct that caused the loss.
The inquiry into wealth management companies is due to submit a final report by the end of March 2025.
