In her submission to the Senate economics references committee’s inquiry into wealth management companies, Jan Smith, who along with her wife were “personal clients of Alan Dixon” for part of their 15 years with Dixon Advisory, said the negative impact of the financial advisory’s collapse was “substantial”.
Following a long career in the NSW public service and running a consultancy firm for 15 years, Smith said the drawn-out process of receiving compensation, further delayed due to Dixon entering insolvency, saw the couple being part-pensioners, rather than self-funded retirees, which they had “never envisaged”.
“We could no longer afford the ongoing maintenance of our lovely home in Burradoo, near Bowral. We had to sell it and we moved to a retirement village in the Central Coast of NSW,” she said in the submission.
“It feels like we have moved to a different country and the negative impact on our lives and happiness from the actions of DASS has been substantial.”
Smith said that the couple had raised their concerns over the “obvious conflict-of-interest” of the firm providing advice on in-house products with Dixon in writing on multiple occasions, which was met with denials.
“DASS predictably denied a conflict of interest and in 2019 we chose to sever our ties with them after having been clients for 15 years,” she added.
“It was, of course, by then too late. We had lost a great deal of our savings. It meant that there were years of hard work wasted and our retirement plans were shattered.”
The couple has since received $150,000 from the Compensation Scheme of Last Resort (CSLR), which is the maximum that the scheme can pay out.
“We are very grateful to have received this amount, even though we lost considerably more than $150,000. We are not seeking further compensation,” Smith said.
In her submission, she argued that the ability of Dixon to both provide financial advice and develop its own financial products to promote to their clients was the “heart of the problem”.
“The risk of conflict-of-interest in these dual roles is mammoth as has been proven by DASS. I believe that legislation ought to be developed to make it impossible for companies to do so,” Smith said.
“Without such legislation there will always be ‘cowboys’ and ‘cowgirls’ who see ways to use their clients as ‘cash cows’ to satisfy their own greed. All financial advisers, in my view, should be truly independent financial advisers.
“Without this protection government initiatives such as the Compensation Scheme of Last Resort will collapse under the volume of claims and cost of compensation.”
‘Cynical and unacceptable’
In its submission to the inquiry, the Financial Advice Association Australia (FAAA) warned that this ability to avoid paying client compensation provides an “attractive” way out.
“It was evident that ASIC’s action and focus on financial advice files meant that these complaints would end up as ‘financial advice’ External Dispute Resolution (EDR) claims if Dixon Advisory remained a member of AFCA,” the FAAA said.
“In this case, it was clear that ASIC and AFCA were focusing their attention on financial advice issues. This provided an attractive ‘way out’ for E&P to avoid payment of client compensation.
“The fact that E&P Financial Group simply put its subsidiary Dixon Advisory into administration in full knowledge of the consequence for clients and the rest of the financial advice profession, and in the context of the expected establishment of the CSLR, is very concerning.”
Even more galling for advisers is that a large number of both Dixon advisers and clients moved across to a different E&P AFSL. ASIC detailed that about 3,280 of the 4,100 Dixon clients had moved to E&P, along with as many as 39 advisers.
“According to the administrator, this was all done at no cost to Evans & Partners and no benefit to the creditors of Dixon Advisory,” FAAA general manager of policy, advocacy and standards, Phil Anderson, said in August.
Former client Smith also pointed to E&P avoiding paying compensation through these actions in her submission.
“The morphing of DASS into Evans and Partners and the decision to enter voluntary administration on the part of DASS were, in my view, both cynical and unacceptable strategies designed to avoid accountability,” Smith said.
She added that, in order to avoid this possibility in the future, the government needs to legislate that companies found guilty of being in breach of the Corporations Act “be prohibited from morphing into another company or escaping into voluntary administration in order to avoid proper accountability”.
‘Offensive pittance’
The former client also took aim at the “hugely costly and cumbersome” voluntary administration process.
While Smith said Dixon’s administrator, PricewaterhouseCoopers, was a “professional organisation to work with”, it is the mandatory processes that need to be streamlined.
“I don’t have the expertise to provide a well-thought-out alternative model but I am putting in a plea, on behalf of future victims of financial service providers, for the process to be simplified,” she said.
“The combination of the intervention of a class action, the subsequent fees to be paid to the class action lawyers, and the huge costs associated with the work of the voluntary administrators, mean that the DASS clients will be left with a laughable, offensive pittance of compensation through the voluntary administration process.
“We are yet to know whether the amount of compensation provided by the CSLR will be reduced by the pittance that clients will receive through the voluntary administration process. This uncertainty just adds insult to injury.”
On Friday, the FAAA’s Anderson argued that the experiences of former Dixon clients should not be forgotten through the Senate inquiry process.
“We are looking forward to the Senate inquiry hearings commencing and listening to those who know what happened and how things went so wrong,” Anderson said.
“It is only with this knowledge that what needs to change can be identified and addressed. It is the CSLR that has helped to highlight what went wrong at Dixon Advisory.
“Understanding the Dixon Advisory story in detail will help to ensure that it does not happen again and that the serious problems with the CSLR can be fixed.”
Just a question from an unknowledgeable nobody who happened to have lost a substantial amount of money in this fiasco. Why is nobody serving jail time for this?
I’m a former consultant on corporate criminal investigations and prosecutions to ASIC forebears the NCSC and State CAC. A 50 year plus FCA. A former partner of a large practice. I also am a former Dixon Advisory client who suffered significant losses. I am actively looking at a criminal prosecution of my DASS adviser. I’ve also done substantial investigative work over the last few months canvassing a range of issues that go to the core of the collapse of trust in the capitalist system. This is not a “communist” comment. Betrayal is at the heart of it.
But criminality pursuant to existing laws is clear to me.
As a substantial victim, I fully endorse Jan Smith’s excellent summarization of the Dixon/E&P fiasco. Having had both my Class Action and CSLR claims formally determined (but as yet unpaid), I can assure her and others, that the amount of compensation provided by the CSLR is in fact reduced by the pittance clients receive through the voluntary administration process. Hence, the delay in payment of my compensation until after the VA pittance is actually received – estimated by the Administrators to be on or before 24 April 2025.
What difference does it make if advisers cant write in house products? The rest of the advisers in the industry will have to pay for these sorts of rorts anyway. Just saying it as it is rather than hiding as anonymous.
Perhaps, but the current system does seem to lend itself to pass the loss from Product Manufactures failures or ASIC failures to take action directly to Financial Planners? Funny system – the Dealer Group (House) always seems to win? Is the game rigged?
Its the cause of most problems in our industry.
It’s about time the regulators and media admitted Hayne was not the messiah, he was a vain old fool. It was blindingly obvious long before the Royal Commission that the root cause of most problems in financial advice was vertical integration. Everyone who understood the industry expected Hayne to ban it. Everyone within the industry had made plans to adjust.
But no, in one of the rare moments Hayne wasn’t preening for the cameras or dozing off, he declared vertical integration was fine. He said the real solution to the problem is to strangle advisers in even more red tape.
So here we are in the post Hayne world. Red tape has made financial advice too complex and expensive for most consumers to access. Those consumers who go to cross subsidised vertically integrated product/advice shops are still being ripped off. And Stephen Jones’ solution to this is to make vertically integrated “advice” more widely available.
“And Stephen Jones’ solution to this is to make vertically integrated “advice” more widely available.”
It’s like they had this idea from the start?
It is a worrying trend that vertical integration does still exist. Many planning groups are now setting up their own SMA’s and using that as a tool to clip the ticket multiple times as many have done in the past. Unless the SMA is run by an asset consultant completely independent of the advice group then sadly this trend will continue to deliver poor outcomes for clients!
What if the SMA is run by internal asset consultants? How does a dealer group then facilitate cost recovery without a product fee?
There is nothing wrong with running an SMA and charging a product fee. But there is everything wrong with using advisers within the same corporate structure to promote it. SMA’s should only exist if they are recommended by independent third parties.
If the SMA is inhouse how does a client know the adviser is recommending it because it’s a good SMA, rather than recommending it because they have been arm twisted into doing so by a conflicted licensee who holds unreasonable power over the adviser? It’s exactly the same principle as what happened at Dixons. Just not quite as egregious.
Agree, I’ve compared several in house SMA’s tailored made for a product-owned licensee, compared to the same model portfolio constructed by an Adviser. The performance via the SMA is worse, and the fees are higher. When you question the under performance you see a layer of fees going back to the product provider.The Adviser is being brainwashed into using the SMA. Individual licensing is the only solution.