The Financial Advice Association Australia (FAAA) has stepped up its calls for a public inquiry into the circumstances that led to the collapse of Dixon Advisory, including how the impact of the scandal is flowing through into the Compensation Scheme of Last Resort (CSLR) and costing financial advisers.
Posting on LinkedIn, FAAA general manager policy, advocacy and standards, Phil Anderson, said that given the potential cost to the advice profession through the CSLR could reach $135 million, “our members are demanding to understand how this has got so out of control”.
“The answer is simple, it is all about the one entity – Dixon Advisory, which has generated a total of 2,773 complaints to AFCA, more than five times the annual number of complaints for the entire advice profession and multiple hundreds of millions of dollars in client losses,” Anderson said.
“How did things go so badly wrong? That is the question that we want to get to the bottom of. This is much more than just a few advisers providing poor advice. This is about an entire business that was focused on heavily selling in-house investment products, and one in particularly (URF), that turned out to be deeply flawed.”
The FAAA has also released a paper detailing the action that the Australian Securities and Investments Commission (ASIC) has taken against Dixon as well as the class action, which was settled in April; however, because both actions did not play out in the courts, “we really do not have the answers that we are looking for”.
“Some of what was said and done in this process will deeply surprise you. It is worth the read; however the inevitable conclusion is that the only way that we will really understand what happened, and who was responsible for this debacle, is with a public inquiry,” Anderson said.
“Raise your voice and join the calls for a public inquiry into Dixon Advisory.”
The FAAA paper argued that a public inquiry is “essential to get to the bottom of this”.
“There have been public inquiries in cases where the losses have been much less,” it said.
“The government needs to launch a full inquiry into Dixons, including the operation of the Compensation Scheme of Last Resort, to discover exactly what happened, and how the design of the CSLR can be improved to ensure that this never happens again.”
‘Easier to focus on the financial advice issues’: ASIC’s role
According to the FAAA, questions also need to be asked about the actions of both ASIC and the courts.
Pointing to the judgment in the Dixon case, the paper notes that the “quite amazing provision” in the first order makes it clear that the regulator would not be able to enforce any orders for “pecuniary penalties, or any costs order” against Dixon Advisory.
“Why would a regulator complete a prosecution of this nature without the intention of enforcing the penalty and collecting the costs order? Why wasn’t this made clear in ASIC’s media release on 19 September 2022?” the FAAA queried.
“ASIC has publicly acknowledged on a number of occasions since, that they do not expect this penalty to be paid. Dixon Advisory was placed into administration some eight months earlier. So why proceed with this case, incurring more costs, if there was never any expectation of the fine being paid?
“From a financial adviser’s perspective, why did ASIC continue to incur costs in this matter, if it never expected to recover the costs, when it was the advisers who would pay for it. Financial advisers paid for the action, and yet stood no chance of the costs being recovered to offset the ASIC Funding Levy.”
The FAAA also pointed to changes between the original action brought by ASIC and the ultimate outcome, noting that the failure to prioritise the interests of the client was “strangely dropped”.
“Why would ASIC drop this critically important part of the case that goes a long way to explain the reasons for why Dixon Advisory operated this way?” the paper said.
“It is obvious that the fees from the URF were a critical contributing factor. It is hard not to surmise that, for ASIC, it was easier to focus on the financial advice issues and not what was at the core of what really went on in Dixon Advisory and the broader group.”
ASIC’s decision to settle the case, even though the “enormous scale of the Dixon Advisory debacle was plain for ASIC to see”, also drew criticism from the FAAA.
“It had in fact issued a media release on 3 August 2022 encouraging Dixon Advisory clients to complain to AFCA as a matter of urgency,” it said.
“This call was particularly successful, so much so that by 7 September 2022, AFCA had received a total of 1,638 complaints from Dixon Advisory clients. However, ASIC had seemingly given up the opportunity to take further action.”
Ultimately, the FAAA said, there is no reason the details of what happened at Dixon Advisory should remain such a “tightly held secret”.
“It is not clear why ASIC pursued an action that placed virtually the entire focus on a group of financial advisers, who it also agreed never to pursue further. Unfortunately, after showing some real promise, the class actions provided little insight either,” it said.
“This can’t be left here. A public inquiry is essential to get to the bottom of this.”
Dixons were Canberra based and their main target market was Federal public servants. That’s the way Darryl Dixon set the business up originally. Clients included staff of ASIC and Treasury, the departments responsible for regulating advisers and products being promoted. If they couldn’t identify a dodgy product offering, allowed it to flourish and investing in it themselves, we shouldn’t have to compensate them.
Russell Tym
FAAA must spend some money on this – get into the media or legal action or both.
Why do the FAAA expect everyone else including their own members to do the heavy lifting?
Agreed! The FAAA should be taking this to all media and opposition politicians to gain traction and make the government take action.
Practicing financial advisers have to constantly pick up the tab for AFS Licensees’ breaches. It is simply not just!!
Exactly. ASIC is the regulator of these ASFL’s and seems to be really good at failing in that roll? Find it hard to follow any logic that any unrelated Financial Adviser is responsible for some product that failed – even if it was in the approved list of some unrelated ASFL?
There is something very deeply rotten IMO within Treasury.
agreed
Feels like the FAAA is finally making some noise to try and satisfy the calls of it’s dwindling membership but I guess it all counts
A bit late for him to act – I have moved to AIOFP
Im running both – but dropping FAAA in coming year.
Just fund the Federal Police appropriately to undertake a fraud investigation. That is what it needs. Track the money flows, fees paid outside Australia and offshore tax havens. Then you may see the real model.
Poor Dixon Advisers in the main possibly had no idea what they were really selling and trusted the senior management too much.
Dixon clients on the other hand likely forgot the ASIC warning, “if it sounds too good to be true, it probably isn’t.”
Greed and arrogance by clients played a part in this. Just talk to non Dixon advisers who lost clients because they could not provide as good a return, supposedly.
Where is Alan Dixon?
Apparently being the previous head of advice for Dixons doesn’t count you out for a job at Treasury just ask Nerida Cole, so Alan Dixon probably could apply for a job at ASIC or APRA.
I’m sorry I have to disagree on the “Poor Dixon Advisers” comment… any adviser worth their salt would have known EXACTLY what they are selling and doing.
If the ASFL has it on the approved list – an ASFL which was supervised by ASIC. Your argument is good evidence for eliminating all ASFL’s and ASIC supervision.
By the way – anyone else know of a product(s) heavily reliant on Property and recommending their own?
CBUS baby
And what could possibly go wrong? It would be a surprise to everyone BUT Financial Planners – who would be on the hock to compensate the CBus members who’s in-house Advisers put them in there?
Absolutely
presumably working at an idustry fund call centre, given their standards, right?
There will not be an inquiry unless there is massive pressure from the media. The FAAA need to lobby the ABC, the AFR and other mastheads to run stories on this. That’s the only way to get it done.
Although I still doubt an inquiry would happen. Best case scenario: they amend the CSLR to appease us and bury the corruption problems.
Both parties want to keep this quiet as it doesn’t suit their agenda of product salespeople masquerading as ‘(un)Qualified Advisers’.
You have it spot on Sir!
Calm the boisy advisers, move on, dont have a inquiry for which there may be embarrassment
Bravo on making this call. As a side note, It would be very interesting to see how many of the AFCA complaints have a Canberra postcode.
Perhaps the FAAA should contact the ABC to see if Four Corners can do a story on this. Four Corners investigations seem to get things happening more so than just calling for something to happen!
Great idea we should all do the same!
I have done this as an individual. So should others – otherwise they won’t even know about it.
FAAA, ask why the government agreed to cover the first 12 months of the CSLR, but then in August 2022 they were aware that they would have to fund a large portion due to the Dixons fiasco and from March 2023 they restricted it to 7 months, knowing full well the burden would fall to advisers.
August 2022:
“The complaints against Dixon Advisory also expose the Government to increased costs in the first levy period (2023‐24). – Treasury will work closely with the CSLR operator and AFCA to ensure that costs directed towards the Commonwealth in contributing to scheme costs in the first levy period are grounded in actuarial principles as required in the legislation.”
March 2023:
“– Shorten the first levy period: The first levy period would commence on a date determined by the Minister (likely 1 December 2023) and end on 30 June 2024. Under this arrangement, the Commonwealth would fund scheme costs for the first 7 months under a 1 December 2023 commencement.”
Ask Stephen Jones how his governments actions help with the costs of financial advice? It’s all here, and he was part of it. This is just like using ASIC to peruse a court case regarding Dixons, knowing there would be no recovery of costs and Financial Advisers can pick up that expense too, via the ASIC Levy.
https://treasury.gov.au/sites/default/files/2023-12/foi-3349.pdf
A public enquiry needs to not only be asking the tough questions of ASIC but also Treasury.
Looking like about 10 times the Storm Financial disaster of 15 yrs back, heavily geared property in the wrong households.
Congratulations to the FAAA for taking a decisive and courageous stand by calling for a public inquiry into the Dixon Advisory collapse. This is a critical step toward uncovering the truth behind this debacle and ensuring accountability for those responsible.
The situation with financial advisers being saddled with the Dixon Advisory bill is not just flawed—it’s highly suspicious. The handling of this issue reeks of potential backroom deals and corruption. The fact that financial advisers are facing a potential $135 million in claims, while the parent company settles its class action for a mere fraction and continues operations, raises serious questions about the integrity of the process.
Peter Johnston of AIOFP has already made significant strides by referring this matter to the National Anti-Corruption Commission (NACC), highlighting the questionable involvement of Treasury bureaucrats in the CSLR construction. It’s reassuring to see the FAAA joining this crucial fight, pushing for transparency and justice.
Johnston’s commitment to exposing potential corruption and ensuring fairness for advisers, despite representing only a minority, is commendable. The FAAA’s recent actions reflect a necessary and proactive stance, emphasizing the importance of a public inquiry to fully understand how this situation spiraled out of control and who was responsible.
The sudden rush of an additional 263 complaints in the final month before Dixon’s membership of AFCA ended further underscores the need for a thorough investigation. The involvement of Treasury members in drafting related legislation raises concerns about potential conflicts of interest and backroom dealings.
The FAAA’s call for a public inquiry is essential. It’s time to get to the bottom of this, uncover the truth, and ensure that such a failure never happens again. Kudos to the FAAA and Peter Johnston for their leadership and dedication on this matter.
In a draft report prepared as part of a due diligence process before the 2016 merger between the two wealth managers (Dixons & Evans & Partners), KPMG called out “Dixon’s reliance on URF,” the $1.16 billion US Masters Residential Property Fund. Shareholders of Evans & Partners were told by accounting firm KPMG that a merger with Dixon Advisory could result in reputation risks as any public float would reveal Dixon’s reliance on fees generated from a controversial property fund and draw attention to its business model of selling its own products to clients.
Where were you ASIC?
ASIC? Probably doing what they always do?
The government should support this if they have nothing to hide and the opposition should be telling the public all about this if they don’t…
Totally agreed! Catch the black hand(s) behind it!