The Federal Court of Justice in Victoria, Australia, has upheld a $7.2 million penalty payable by Dixon Advisory and Superannuation Services for failing to act and provide advice in the best interests of their clients that were appropriate to their customers’ circumstances.
Two years ago, the Australian Securities and Investments Commission sued Dixon Advisory for breaching the Corporation Act, accusing six of the consultancy’s company representatives of involvement. The company regulator alleged that Dixon Advisory failed to recognize the conflict of interest between Evans Dixons clients and companies and that a capital loss resulted from that negligence. In July 2021, Dixon Advisory reached an agreement to settle ASIC’s civil lawsuit and admitted to a number of allegations three months later.
“There is no evidence that the [Dixon Advisory] Representatives have conducted the necessary reasonable research into the recommended financial products or alternative financial products, nor is there evidence that they took into account the personal circumstances of the clients,” Judge Timothy McEvoy said in a statement. “The violations were not the result of isolated incidents or unlawful conduct by agents. Six agents committed the violations over a period of approximately three and a half years.”
Established in 2011 by Dixon Advisory, the US Masters Residential Property Fund aims to bring investors closer to the US residential real estate market by investing in real estate in New York City. On 53 occasions between October 2015 and May 2019, Dixon representatives did not act in the best interests of their clients and advised eight clients to purchase, renew or retain shares in URF without investigating their background.
These inappropriate practices left some clients’ self-managed pension funds under-diversified and suffered a significant loss of assets. Brian Osborne was one of the many clients who lost hundreds of thousands of dollars investing in URF, and Osborne believes the court’s decision was “just a slap on the wrist.”
“I’ve been waiting to see something substantial, with some sort of compensation for investors who have lost large chunks of their retirement,” he said Financial review.
In June 2019, the company’s vertical integration model received negative attention after several clients said they were encouraged to invest sometimes more than half of their savings in stocks, hybrid bonds and U.S. real estate fund-linked debt. According to ASIC, the fund paid $136 million in fees to Dixon between September 2015 and June 2018, at one point accounting for nearly two-thirds of Dixon Advisory’s revenue. Before its collapse, Dixon Advisory was Australia’s fourth largest provider of self-managed super funds, providing wealth management services to over 5,000 clients.
Despite Dixon’s efforts to embark on a renovation program, the overcapitalized fund still underperformed and continued to charge clients heavily. The company has been criticized for leading clients to make risky investments, and discussions became even more heated when URF shares fell 50% between 2017 and 2019. Eventually, Dixon Advisory’s troubles with URF culminated in the departure of former CEO Alan Dixon and the firm’s merger with Evans & Partners by David Evans in 2017.
“Licensees need to ensure their representatives consider the specific needs and circumstances of their customers,” said Sarah Court, vice chair of ASIC. “Advice that does not reflect the client’s circumstances — or advisory models that produce consistent outcomes — are less likely to meet best-interest obligations and may expose clients to risk of capital loss.”
In November, law firm Piper Alderman filed a class action lawsuit against Dixon Advisory for failing to act in the best interests of its clients. The lawsuit alleged that Dixon’s investment committee reviewed, approved and recommended which products “should be passed on to group members” that the firm believed could earn millions in fees. The lawsuit came just weeks after Maurice Blackburn sued the company for causing a couple to lose nearly $1 million in retirement savings and a month before Shine Lawyers proceeded with its own class action lawsuit.
Dixon Advisory applied for voluntary administration in January and on April 19, ASIC suspended its Australian financial services license. The court said Dixon Advisory can resume providing financial services if it implements appropriate systems, policies and procedures to ensure its agents are acting in the best interests of their clients.
PwC’s Stephen Longley and Craig Crosbie were jointly appointed Volunteer Administrators of Dixon Advisory & Superannuation in January and Accounting Today invited comments.