Responding to questions on notice from Liberal senator Andrew Bragg, the Australian Securities and Investments Commission (ASIC) agreed with the senator’s assertion that clients having highly concentrated exposure to a related party product would set off an “alarm bell”.
The written questions, which the senator directed to ASIC as part of budget estimates, noted that the Australian Financial Complaints Authority’s (AFCA) first determination relating to a Dixon Advisory case found the client was “invested between 54 per cent and 75 per cent in related party product across a seven-year period”.
“Is this a surprisingly high allocation in ASIC’s view?” Bragg asked.
“Would such a high percentage of related party products normally be an alarm bell for ASIC? What monitoring does ASIC do to oversight this issue of high related party investment allocation for vertically integrated groups in the financial services sector?”
According to the regulator, it was concerns around overexposure to the US Masters Residential Property Fund (URF) within client portfolios that “formed part of the case ASIC brought before the Federal Court and in which we alleged best interests failures”.
“Generally, overexposure to related party products can be a red flag. However, each instance of financial advice provided to a client needs to be considered to assess issues such as the clients’ objectives and what the client requested,” ASIC said.
“ASIC does not proactively supervise and oversee all advice provided across the financial planning industry that potentially raises issues of overexposure to particular products. However, ASIC does undertake targeted proactive surveillances on various entities and we will consider conducting investigations where serious advice failures are identified (or otherwise brought to our attention).”
Looking at the composition of the URF, it wasn’t just that clients were overexposed to the fund, Dixon clients also made up an overwhelming majority of the investment in the URF.
Bragg questioned the regulator over whether the percentage had been identified, and whether it suggested a “suggest a strong level of pressure had been applied from elsewhere in the company to support this product”.
ASIC said it found that Dixon clients “often comprised up to 80 per cent of the total investment in the URF”.
“The URF was one of a number of integrated products within the EP1 Group that were recommended by DASS to its clients. Given the integrated model, DASS regularly recommended in-house products to their client base,” the regulator said.
“ASIC held concerns about DASS’ recommendation of the URF, and URF-related products, to clients. Accordingly, that aspect was a focus of ASIC’s best interest litigation against DASS.”
Focusing on the company, not the advisers
The regulator has consistently maintained that the focus of its investigation was on the Dixon Advisory business model, rather than on individual advisers.
Indeed, while ASIC named six representatives that had provided advice to clients in breach of their best interest obligations as part of the Federal Court action against Dixon, five still show as current on the financial advisers register, just one of which is under a licensee that is not E&P.
In a November 2023 response to previous questions on notice from Senator Bragg, ASIC explained that the “relevant individual advisers were acting in accordance with the guidance and procedures set by their licensee”.
“Whilst ASIC’s action relied on evidence of certain clients and instances of advice given to those clients (because each individual breach needed to be established to the court’s satisfaction), the core regulatory concern, and focus of the proceedings was the structure of Dixon’s operation, which ASIC alleged led to advice failures across the business,” it said.
“As such, ASIC has not focused its enforcement efforts on individual advisers.”
Responding to Bragg’s most recent questions, the regulator added that during its investigation, it had “limited interaction” with Dixon advisers and “intensive interviewing of advisers was unnecessary”.
ASIC said that reviews of business records and evidence it obtained gave the regulator “sufficient understanding” of the firm’s operations and advice.
“We retained an independent expert to assess each piece of advice provided by a DASS adviser (that was the subject of the allegations presented by ASIC to the court) to establish advice failings,” ASIC said.
Senator Bragg also pushed the regulator on why the directors and management of Dixon also escaped punishment.
“Presumably, if you decided not to take action against individual advisers, then you must have decided that the core of the problem was the underlying business model. If this was the case, then why wasn’t action taken against management and directors who designed and operated that business model?” he asked.
ASIC responded that, given its investigation focused upon “overall systemic issues” related to the business model, “ASIC considered the appropriate response was to take action against DASS for failing to prevent the ongoing advice failures”.
“There was insufficient evidence or grounds arising from the investigation to take action against DASS management and directors,” it said.
ASIC said there was at least 3 former treasury officials invested with Dixon advisory. They are only the ones who declared possible conflict of interest.
[b]Is there any more Dixon’s clients/investors worked with government at some stage? [/b]
Answering this question may help to find potential external influences in ASIC’s decision in singling out Dixon and settling $7.2 mil using CSLR.
Us advisors need to boycott this CSLR and get them to point the bill towards Evans and partners. How does a business who owns 100% of Dixon get away with not making these clients whole and worse yet, hire 5 of the main culprits.
The problem with all this boycott talk is the assumption that it will force regulators to see sense and move to a better system.
But the people working within regulators have a pathological hatred of all professional advisers, and want to eradicate them. They know the current system is terrible, and are very happy with that. If professional advisers fail to pay regulatory levies it would just give regulators an opportunity to speed up their adviser eradication program.
Take AWARE Super as an example – if their Super Returns and Super Advice turns out to be conflicted/in house and a product loss occurs – is the entire Financial Planning profession liable? Seems like it is?
I want a highly paid job at ASIC because I could not possibly do any worse than the current bunch of incompetent clowns who work there!
ASIC said… “there was insufficient evidence or grounds arising from the investigation to take action against DASS management and directors”.
Surely the followup question to this must be “Why wasn’t there sufficient grounds or evidence from the investigation when it is abundantly clear to everyone that these people are guilty as hell? Was the investigatory failure due to incompetence? Or corruption? Or was the investigation cut short when it became clear that honest advisers with no involvement whatsoever in Dixons could be the ones punished for Dixons crimes, via CSLR?”
And Nerida Cole is employed by Treasury to oversee Financial Advisers !!!
This is corrupt.
“sufficient understanding”
but then
“There was insufficient evidence or grounds arising from the investigation to take action against DASS management and directors,” it said.
“The regulator has consistently maintained that the focus of its investigation was on the Dixon Advisory business model, rather than on individual advisers.”
Yep, ASIC just watched Dixons continue to provide inappropriate advice all the way until it collapsed. Ask for a timeline of when ASIC started investigations, and what exactly were the investigations. My guess, is ASIC sat on the reports regarding Dixons conduct, and never actually looked into them until it was too late.
ASIC dropped the ball, but innocent advisers have to pick up the tab!
“We retained an independent expert to assess each piece of advice provided by a DASS adviser (that was the subject of the allegations presented by ASIC to the court) to establish advice failings,” ASIC said.
Looks like ASIC outsourced it? My guess is they didn’t even have a report to sit on? Potentially even worse?
It raises the question of who was the independent expert? Seems strange files submitted to AFCA quite easily identify incorrect asset allocations and related party investments as the basis for the AFCA lead decision yet this expert didn’t see anything wrong. Did this expert actually exist?
ASIC has declared its bias to ensure a very specific outcome and then in cahoots with the Government rushed thru CSLR to provide a money back process for high income influentials. How do we investigate the investigators. How do we investigate Government.
Vested interests, centre, right and left. Labor / Liberals are up to their eyeballs in it… always seeking ways to constantly protect the gravy-trough from which they feed.
Surely ASIC should be investigating a conflict of interest under the corps act
Did the directors adequately disclose and discharge their responsibilities under the corps act to highlight a conflict of interest in their board reporting amd what steps did they take under their fiduciary duty to discharge their responsibilities?
Also did they adequately disclose the conflict of interest to their clients in the SOA and terms of business?
Given the parent company would also have governance oversight it would have also been or should have been brought up at their board meeting
Same for a number of industry super holding IFM funds?
And if that goes bang – Financial Planners not using them will be picking up the bill? Seriously – this is complete madness?
Vertical integration was responsible for 99% of royal commission issues and now dixons, governments response lets mandate under qualified under educated funnels of sales under the guise of advice to more industry fund vertical integration. Whilst simultaneously over taxing and choiking with red tape advisers who dont want to flog product. Disgusting and incompetent
CORRUPT Canberra more than incompetent