Tough Senate questions for ASIC on Dixon Advisory

Mike Taylor

Managing Editor and Publisher

19 July 2024

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:

1. Why did it take so long, if the client loss was so great?
2. What did you discover with respect to the sales practices and the related party URF fund, where the client losses were so great?
3. What processes did the licensee take to research the URF fund before it was recommended to clients and how did they monitor its performance?
4. Did you interview financial advisers to understand why they recommended such high allocations to related party products?
5. 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?
6. 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?