In this guide
When high profile wealth management firm Dixon Advisory finally put up the white flag, it’s self-managed super fund (SMSF) clients were left holding the can for big losses.
Dixon filed for voluntary administration in January 2022, bowing to pressure from multiple class actions by aggrieved investors. It had also received a $7.2 million fine from the Australian Securities and Investments Commission (ASIC) for failing to act in their clients’ best interests.
Many of Dixon’s clients had also taken their complaints to the Australian Financial Complaints Authority (AFCA), but the complaints process was paused when Dixon went into voluntary administration. All queries must now be directed to the administrators, Stephen Longley and Craig Crosbie of PwC Partners.
A statement from AFCA said: “We don’t wish to put people through the complaints process when there may be no prospect of compensation by the firm because of insolvency.”
So what went wrong and what lessons can investors, particularly SMSF investors, learn from Dixon’s collapse?
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Background
Dixon Advisory provided administration services and financial advice to more than 4,500 SMSFs worth a combined $4 billion.
Founded by retirement planning guru Daryl Dixon over 35 years ago, it was his son Alan Dixon who later set up the SMSF and financial advice business. Alan Dixon stepped aside as CEO in 2019 and sold his share in the firm, a sign that trouble was brewing for some time.
The seeds of Dixon’s demise were planted when it started creating its own products to sell to clients. The best known was the US Masters Residential Property Fund (URF), which packaged up distressed US homes in the wake of the Global Financial Crisis, but there were others. URF eventually fell almost 90% in value, but it wasn’t just the heavy investment losses that worried investors. They had also been charged high fees by Dixon and associated companies at every turn.
Dixon clients were even encouraged to buy shares in the ASX float of its parent company, Evans Dixon in 2018, and to invest in Evans Dixon’s own property funds.
The beginning of the end came when the corporate regulator, the Australian Securities and Investments Commission (ASIC), took action against Dixon in the Federal Court of Australia in 2020. It alleged Dixon representatives:
- Failed to act in their clients’ best interests
- Failed to provide advice what was appropriate to the clients’ circumstances
- Knew or ought to have known that there was a conflict of interest between their clients’ interests and the interests of entities associated with Dixon within the Evans Dixon group.
Dixon was found to have breached the Corporations Act, fined $7.2 million and ordered to pay ASICs legal costs of $1 million.
Despite this litany of failures, Dixon was no rogue outfit. It held an Australian Financial Services Licence and was a member of AFCA. For decades it helped thousands of ordinary Australians manage their retirement savings.
Even so, red flags emerged in later years with lessons for all investors, as we outline below.
Beware in-house products
Despite significant reforms to the financial advice industry in recent years, conflicts of interest are still an issue. This commonly occurs where a financial adviser recommends in-house products even where they are not in the best interests of their client.
Investors should be wary if their adviser recommends products manufactured by their parent company or an associated company, often a bank or large financial institution. While this so-called vertical integration potentially offers economies of scale, too often the financial benefits go to the product provider in the form of fees, not the client.
Your best protection is to seek out independent financial advice from an adviser who can offer appropriate products from a wide range of providers, free from conflicts of interest.
Follow the money, not the man (or woman)
When the name Dixon Advisory is mentioned, many readers will instantly remember their ubiquitous ads featuring founder Daryl Dixon alongside former Australian Financial Review editor Max Walsh. Both men were industry elders widely respected by investors and the financial industry alike.
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The aim of marketing like this is to signal experience and invoke trust. But what you see is not always what you get. When you are investing your hard-earned retirement savings, you want more than a warm and fuzzy feeling.
No doubt Dixon employed many experienced advisers who genuinely cared about their clients, but don’t let sympathetic personalities or slick marketing campaigns stop you from asking hard questions about the products and services on offer and the fees you pay. Good advisers will be happy to answer all your questions.
Footballers are often told to play the ball, not the man (or woman). Investors would do well to do the same and follow the money trail, not the influencers in the marketing campaign.
Who you gonna call?
Unfortunately, there are no ghostbusters waiting to answer your distress call, especially if you have an SMSF where avenues for complaints and financial compensation are limited.
The first call made by distressed Dixon clients was to the financial ombudsman, AFCA. While AFCA can’t help SMSFs with cases of theft or fraud, it can help with complaints about financial products and services.
According to AFCA, it received 122 complaints from Dixon clients in just over three years to February 2022. Most were seeking compensation for losses resulting from inappropriate financial advice and recommendations to invest in Dixon in-house products they say were inappropriate.
However, as mentioned earlier, these complaints were paused when Dixon went into voluntary administration. You can see an explanation of the range of outcomes AFCA has available to it here.
As also mentioned earlier, the corporate watchdog ASIC launched and won an investigation, but this didn’t help Dixon’s out-of-pocket clients.
The next call made by SMSF trustees was for a class action. Several legal firms did launch class actions for Dixon clients, but there were doubts about what could be achieved and all had come to nothing by the time Dixon called in administrators.
When a company fails, all’s not lost
It’s worth noting that in cases like Dixon, where an adviser or a financial firm you are dealing with goes under, yours or your SMSFs assets are not at risk. That’s because your assets are held in your own name or in a trust.
However, if you have a complaint about an insolvent firm then receiving financial compensation is likely to be more difficult and time consuming. In the first instance, you need to contact the administrator, receiver or liquidator then stand in line as an unsecured creditor.
For more on what happens if you have a complaint about an insolvent firm, see AFCA’s fact sheet.
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