The actions of Dixon Advisory’s investment committee are expected to face further scrutiny at the next Senate inquiry, according to the Financial Advice Association Australia (FAAA).
The organisation’s submission to the Senate Economic References Committee’s inquiry into wealth management companies detailed its concerns over the structure of the investment committee at Dixon.
She identified issues within the committee regarding conflicts of interest, lack of independent research and customers being pushed towards in-house products.
Dixon Advisory and its associated entities collected $134 million in fees from the US Masters Residential Property Fund (URF) between January 2015 and June 2018, and the FAAA estimated that this figure could be even higher in reality. It is likely that these fees influenced the decision to invest in the fund, despite its high operating costs, significant real estate fees and underperformance where the fund lost money in five of the nine years between 2012 and 2020.
“These were not individual advisors making their own decisions to recommend internal products to their clients, but rather an investment committee made up of people from different parts of the company who made overall decisions about the quantity of individual customers. would invest in each of the different URF-related products.
“This is a top-down decision for clients to invest, with full knowledge of the benefits to related parties that would arise from an increase in the amount of money invested in the URF.
“The lack of independent research on URF was a very important warning sign, and it would be interesting to understand how Dixon’s Investment Advisory Committee initially decided to promote the fund and put it on its product list approved and why it was kept on the list all along.
It was the investment committee that “made the decisions” about clients’ investments, and the FAAA was concerned about the power individual advisors had to override its recommendations. He also suggested the development of an “ethics helpline” for counselors who have ethical concerns about such issues.
“It is unclear whether Dixon Advisory’s salaried financial advisors had internal authority to reject recommendations made to them by the investment committee. It was clear that advisors had little opportunity to fully assess the merit of these recommendations for clients. Counselors may need to have access to the ability to report these issues or have an ethics helpline to help them find the best way to respond.
“We believe it would be appropriate to investigate whether any advisors have left or been disciplined within Dixon Advisory for refusing to follow these instructions.”
This should have been highlighted more during ASIC’s investigation, he said, rather than focusing almost exclusively on the actions of financial advisers.
“ASIC chose to focus almost exclusively on the advisory side of the business, thereby reducing the possibility of finding evidence that could have led to prosecutions against other directors and officers. We believe this approach has failed consumers.
He recommended that the Senate committee examine issues such as the governance arrangements of the investment committee, how decisions were made and the qualifications of committee members.
- What were the “standard parameters” used by the investment committee to determine the recommendations?
- How were financial advisors informed: of conflicts of interest for Dixon Advisory? Conflicts of interest within the Dixon group in the broad sense? The apparent role these conflicts played in influencing the investment committee’s decisions?
- Why did each financial advisor agree to present these recommendations to clients?
- Did the financial advisors believe the recommendations were in the best interest of each client?
- What level of detail did financial advisors have about the URF, its operations and its risks?
- Were advisors allowed to seek independent product research?
- Has a financial advisor expressed concerns (internally) regarding: recommendations regarding decisions made by the investment committee? Apparent conflicts of interest within the organization?
- Have any incentives been offered, or potential repercussions discussed, to encourage financial advisors to present their recommendations to clients?
- Were there clauses in staff contracts that influenced the decisions of financial advisors?
AFCA Membership
In a separate recommendation, the FAAA said a company’s membership of the Australian Financial Complaints Authority (AFCA) should not be “unreasonably extended” as Dixon Advisory has been.
Dixon’s AFCA membership extension ran from April 8, 2023 to June 30, 2024, resulting in more than 2,700 complaints filed by consumers.
“We accept that this may include some genuine complainants who were late in submitting their complaint. We are concerned, however, that this may also include others who have less merit and who are doing it because it is free for them and might gain some benefit through the CSLR.
“The complication for the counseling profession is that we have to pay AFCA fees of around $12,000 to deal with each complaint, whether it is found in favor of the complainant, the AFCA member, or it does not lead to a decision.
“The cancellation of the license should not be extended unreasonably. The two years and five months given to Dixon Advisory clients to file a complaint was excessive. There needs to be a standard approach and customers need to understand that there is a limited window.
