Tough Senate questions for ASIC on Dixon Advisory
The Australian Securities and Investments Commission (ASIC) has been placed on notice to answer detailed questions about its handling of the collapse of Dixon Advisory particularly why it extended the firm’s obligation to remain a member of the Australian Financial Complaints Authority (AFCA).
The detailed, written questions have been lodged with ASIC by NSW Liberal Senator, Andrew Bragg, as part of the Senate Estimates process and also ask why, when financial advisers were saying there were problems with Dixon Advisory the regulator took so long to respond.
Bragg’s questions have been sitting with ASIC since 14 June and ASIC will need to be conscious of its answers in circumstances where the Association of Independently Owned Financial Professionals (AIOFP) has referred Treasury’s (and ASIC’s) handling of the Dixon collapse to the National Anti-Corruption Commission (NACC).
The following represents the detailed question directed by Bragg to ASIC:
1. The 19 April 2022 ASIC Media Release on suspending the AFS license of Dixon Advisory included a statement that ”ASIC is also undertaking inquiries in relation to the transition of former clients of Dixon Advisory to Evans & Partners Pty Ltd, a related entity”. What did your investigations reveal? How many of these Dixon Advisory clients moved to other subsidiaries within E&P Financial Group and how many of these clients who moved have submitted complaints to AFCA, which will need to be paid for by the CSLR? Additionally, how many financial advisers transferred from Dixon Advisory to Evans & Partners?
2. Financial advisers are saying that the problems with Dixon Advisory have been known for many years and had been reported to ASIC. Can you please advise what reports ASIC had received, when and what action ASIC took in response to those reports? What was the trigger for ASIC to ultimately take action against Dixon Advisory?
3. ASIC issued a media release on 19 April 2022 with respect to Dixon Advisory and the suspension of their license. In that media release you stated that Dixon Advisory would need to comply with the client compensation obligations, including membership of AFCA until 8 April 2023. In an editors note at the bottom of that media release, there is a statement that ”ASIC cancelled the AFS licence held by Dixon Advisory, effective 5 April 2023. The terms of the cancellation require Dixon Advisory to maintain membership of Australian Financial Complaints Authority until 8 April 2024”. Why did ASIC extend this obligation to remain a member of AFCA for a further year?
4. At the Senate Estimates hearing on 4 June 2024, ASIC confirmed that you were investigating Dixon Advisory between 2015 and 2019, however ultimately decided not to take any action against the financial advisers. With respect to this investigation:
- Why did it take so long, if the client loss was so great?
- What did you discover with respect to the sales practices and the related party URF fund, where the client losses were so great?
- What processes did the licensee take to research the URF fund before it was recommended to clients and how did they monitor its performance?
- Did you interview financial advisers to understand why they recommended such high allocations to related party products?
- To what extent were senior managers involved in both the advice and product manufacturing side of the business and how were conflicts of interest managed?
- Presumably, if you decided not to take action against individual advisers, then you must have decided that the core of the problem was the underlying business model. If this was the case, then why wasn’t action taken against management and directors who designed and operated that business model?
5. AFCA have released the first determination with respect to Dixon Advisory cases. The first case shows that the client was invested between 54% and 75% in related party product across a seven year period. Is this a surprisingly high allocation in ASIC’s view? Would such a high percentage of related party products normally be an alarm bell for ASIC? What monitoring does ASIC do to oversight this issue of high related party investment allocation for vertically integrated groups in the financial services sector?
6.Would ASIC normally investigate such situations to understand what incentives are being paid or pressure is being applied to the advisers to facilitate such a high allocation to related party investment products?
7. As part of ASIC’s investigation of the Dixon Advisory scandal, did you manage to work out what percentage of the total investment in the US Masters Residential Property Fund came from clients of Dixon Advisory? Evidently it was a very high percentage. To what extent was this a concern for ASIC? Did this suggest a strong level of pressure had been applied from elsewhere in the company to support this product?
Good job to those who helped the Senator with these very relevant and revealing questions. Somehow we really need to get to the bottom of what happened at Dixon Advisory and the interplay with the establishment of the CSLR. Questions do need to be asked of ASIC, Treasury and E&P Financial Group and this will only come with a public inquiry. The Government needs to stand up and quickly kick off an inquiry. Dixon Advisory clients and the financial advice profession absolutely deserve this. Let’s put a spotlight on what happened and who did what.
We also need to investigate how a former Dixon staffer was employed by and is still employed by Treasury?
Not just a former staffer, the head of advice at Dixon’s and Evans Partners, Nerida Cole, is employed at Treasury. That like asking John Setka to head up an independent inquiry into the actions of rogue unions.
ASIC has a long track record of ignoring warnings from advisers about the bad behaviour of a minority, then using that behaviour as justification for the persecution of ALL advisers. Has ASIC’s failure been driven by bias, incompetence, corruption, or a mixture of them all?
Whatever the answer, ASIC has proven time and again they are unfit to regulate financial advice. That role must be taken away from them.
Some people have argued that all financial advisers deserved to be punished for failing to rein in the bad behaviour of their colleagues. But under the current regulatory environment, there is nothing other advisers can do besides reporting that behaviour to ASIC. All of the power rests with regulators and licensees. Individual advisers and their associations have no power whatsoever. It is time for financial advice to be regulated by a professional standards body that has the power, competence, and impartiality to stamp out bad behaviour.
Absolutely correct. We had this with FASEA, but unfortunately it was corrupted with ignorant, grandstanding fools who listened to ASIC’s activist bureaucrats and ignored experienced advisers. The opportunity was lost forever and now both sides of politics are champing at the bit to allow their backers to give unqualified advice to sell their products, as greenlighted by Levy. The FASEA directors will go down in history as a disgrace to this country and a significant cause of what will soon be a third-world style financial advice landscape with the institutions reigning with conflicted, uneducated sales driven advice models with substandard consumer protections.
I feel if the Corrupt Useless ASIC and Canberra are not brought to account in this stinky fiasco then then there is no hope at all to get anything fair and just from the Canberra bureaucratic swamp.
As of the 19th July there are 15 determinations by AFCA against Dixon Advisory, all in favour of the complainants with an average loss approximating $226000. All of these cases are available for public viewing on the AFCA website, and reveal a consistent approach by Dixon to profit by manipulating the advise given to clients to invest in related Dixon products. It shows that the Dixon advisors were put in a position to act as per the instructions governed by a management and investment committee, mostly made up of people who were also directors/managers of the related companies. It’s about time that the methods adopted by the Dixon and Evans hierarchy were fully exposed and acted upon.
What is the bet ASIC comes back and refuses to answer any questions using the convenient excuse of not wanting to divulge their investigation tactics, which in bureaucrat speak for we have massively failed and don’t want to own up to it. With it being clear how badly ASIC has stuffed this up, and with no one at Dixon’s or Evans Partners charged, then the community demands ASIC heads on sticks. Such a large financial scandal cannot be swept under the carpet because ASIC failed so badly.
It sure has been frustrating listening to non-responses for whatever reason.
I think that it is pretty well understood what methods and tools ASIC have at their disposal, so why would it matter if it was on the public record as to how these methods and tools were used?
What investigation tactics are so important that they must remain secret?
Oh Yes, it Can, Look at Storm Financial and the long laundry list of failures that ASIC did nothing before with all the warnings and complaints. They look to close the gate after the Barn is burnt down and the Horse have bolted. then go a hang a few advisers out to Dry to show their tough
Dixons was Australia’s most high-profile promoter of self-managed super funds. It was the fourth-largest SMSF provider in the country. Yet ASIC didn’t scrutinise them.
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.
Yet ASIC didn’t scrutinise them, all the way back in 2016.
So, the ASX, ASIC, KPMG, Deloittes, likely the TPB, all new about the issues. No scrutiny from ASIC though.
All ASIC had to do was review a sample of SoAs in 2016 (or prior) to see the misclassification of investors Risk Profile, which would would be regarded as a simple task, with consideration they should already have known Dixons making conflicted/related party recommendations to their clients.
The Lead AFCA case – Case number: 716627 shows
1.2 Issues and key findings Did the financial firm provide appropriate advice and act in the complainant‟s best interests? No.
The financial firm did not provide appropriate advice nor act in the complainant’s best interests.
It:-
failed to provide advice within the risk parameters it set
failed to diversify the portfolio‟s “growth” assets, with the portfolio too heavily weighted towards property;
recommended an overly high proportion of related entity investments without justification. ”
ASIC have been ridiculously incompetent.
Have a read of this and you can see Treasury notifying government that the Dixons compensation is going blow out in August 2022 and they will be on the hook for a large part of it due to funding the scheme in the first year.
https://treasury.gov.au/sites/default/files/2023-12/foi-3349.pdf
“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.”
By March 2023 the recommendation from Treasury is to shorten the first levy period to 7 months and thus reduce their liability, knowing full well their actions mean Advisers will be picking up the tab.
“– 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.”
You have to love the Q&A section (pg 43 of the PDF)
Q: Wont the Scheme make financial advice more unaffordable without fixing the real issues?
A: Any cost that financial advice licensees face from the CSLR is a direct reflection of misconduct and insolvencies occurring within the sector. The advice sector can reduce those costs by doing it can to eliminate misconduct and insolvencies.
Really? because the huge liability is due to ASIC unable to do their job. How do advisers stop businesses becoming insolvent considering they cannot control what a separate entity does. You can tell absolutely zero thought has gone into the impact on advice businesses.
https://treasury.gov.au/sites/default/files/2023-12/foi-3349.pdf
It is not the fault of advisers who care and do right by their clients. ASIC is culpable for failing to regulate.
The evidence is mounting.
Dixon Financial Advisers were just doing their jobs. Similar to the below. Licensed Financial Planners love & care about their clients. It needs to stop.
ASIC should re-open the case and properly investigated the financial planner they crucified (lost their houses, savings and nearly lost his family and suffered significant distress through this experience until now) for alleged churning of insurance products. Through some bogus complaint regarding this financial planner, they alleged the financial planner churned insurance products and put his clients into an inferior product and claimed commissions from it (His superiors received the commissions as per factual evidence, not him). Executives & Staff that presented these evidences was severely manipulated.
Please see below some evidence:
An evidence was presented where allegedly this financial planner was cancelling & replacing insurance covers, low & behold a different financial planner name was clearly visible and was still practising at that time.
An evidence was presented 2 clients was allegedly disadvantaged. Low & Behold, not this financial planners clients at all!
An evidence was presented this financial planner received ongoing insurance commissions etc. Totally incorrect executives & his boss received all this, he was an employed financial planner.
An evidence was presented that a transfer form should’ve been used, however, this transfer form is for a completely different product & does not relate to the matter. The correct transfer form was only generated after this financial planner left to start his own practise.
An evidence was presented alleging it was only this financial planner that was doing it, however, it turns out its widespread. New Business department has provided a reference number on numerous occasions, which indicates, they are aware.
An evidence was presented (signed by an executive, who surprisingly resigned) stating this financial planner was given numerous formal warnings verbally or in writing. Low & behold after a thorough review by 3 independent experts (including an expert that this financial planner hired), there was NO formal warnings whether it be in writing & verbally during his tenure as an employee & few more facts have been discovered.
When this financial planner, decided to represent himself and asked for the 49 client files so he can thoroughly investigate, he has only received 20 client files, until now remaining 29 files have not been presented.
The points above was severely manipulated to make it look like this financial planner was a crook. Isn’t it a crime when an information given to ASIC is incorrect or better yet manipulated?
Turns out, this financial planner had no choice to represent himself at the AAT (no funds to hire a lawyer or barrister, spent $400k trying to prove this complaint was bogus). Proper evidence presented by this financial planner shows new life insurance products had more features and benefits and monthly premiums was “significantly” lower. This financial planner had no compliance breaches throughout his tenure with his coward employer, 100 plus good character references from the community and industry & had all the awards. When the truth started to surface, executives and including ASIC delegate who ruined this financial planner’s life, retired/resigned and employed somewhere else & ASIC stating after the truth being revealed a better outcome should’ve been “Retraining & monitoring this financial planner” (It would’ve saved time & money going after the wrong person).
ASIC has ruined this person’s life including his family (I am sure ASIC staff have families themselves) by clearly not investigating this matter thoroughly, they simply relied on manipulated materials provided to them. ASIC need to take accountability for these significant errors & apologise. Similar to Dixon Clients & Advisers.
Taking accountability will assist in reviving their tarnished reputation as an effective regulator for the people.
What amazes me is that some of the former Dixon’s financial advisors who were front and centre in biased and inappropriate client advice still seem to be working in related E&P positions.