The Federal Court of Victoria, Australia, has ratified a $7.2 million penalty against Dixon Advisory and Superannuation Services for failing to act in its clients' best interests and provide advice that was appropriate for its clients' circumstances.
Two years ago, the Australian Securities and Investment Commission sued Dixon Advisory for violating the Corporation Act and accused six of the advisory's firm representatives of being involved. The corporate regulator claimed that Dixon Advisory failed to consider the conflict of interests between clients and entities associated with a predecessor firm, Evans Dixon, and that capital loss resulted from that negligence. In July 2021, Dixon Advisory entered into an agreement to resolve ASIC's civil penalty proceedings and admitted to a number of allegations three months later.
"There is no evidence that the [Dixon Advisory] representatives conducted the necessary reasonable investigations into the recommended financial products or any alternative financial products, nor is there evidence that they considered the personal circumstances of the clients," said Justice Timothy McEvoy in a statement. "The contraventions were not the result of isolated or unauthorized conduct of the representatives. Six representatives committed the contraventions over a period spanning some three and a half years."
Established in 2011 by Dixon Advisory, the U.S. Masters Residential Property Fund exposed investors to the U.S. residential property market by investing in New York City real estate. On 53 occasions between October 2015 and May 2019, Dixon representatives failed to act in their clients' best interests and advised eight clients to acquire, roll over or retain interests in URF without investigating their background.
These practices allegedly caused some clients' self-managed superannuation funds to be insufficiently diversified and to lose a significant amount of assets. Brian Osborne was one of the many clients who lost hundreds of thousands of dollars by investing in URF, and Osborne believes that the court's decision was "just a slap over the wrist."
"I was waiting to see something substantial, with some sort of compensation to the investors who have lost large portions of their retirement," he told
In June 2019, the firm's vertical-integration model started receiving negative attention after several clients said they were being encouraged to sometimes invest more than half of their savings in shares, hybrids and debt tied to the U.S. property fund. According to ASIC, the fund paid Dixon $136 million in fees between September 2015 and June 2018, thus accounting for almost two-thirds of Dixon Advisory's revenue at some point. Before its collapse, Dixon Advisory was Australia's fourth largest self-managed superfund provider and offered wealth management services to over 5,000 clients.
Despite Dixon's efforts to create a renovation program, the overcapitalized fund still performed poorly and continued to charge clients expensive fees. The company was criticized for leading clients into risky investments, and discussions got even more heated when URF stocks fell 50% between 2017 and 2019. Eventually, Dixon Advisory's issues with URF culminated in the departure of former CEO Alan Dixon and the firm's merger with David Evans' Evans & Partners in 2017.
"Licensees need to ensure their representatives are taking into account their clients' specific needs and circumstances," said ASIC deputy chair Sarah Court. "Advice that fails to reflect client circumstances — or advice models that lead to one-size-fits-all outcomes — are less likely to meet best interest duty obligations and can expose clients to a risk of capital loss."
Last November, law firm Piper Alderman launched a class action lawsuit against Dixon Advisory for failing to act in its clients' best interests. The lawsuit alleged that Dixon's investment committee reviewed, approved and recommended which products were to be "pushed on to group members" whom the firm believed it could earn millions in fees from. The lawsuit came only weeks after Maurice Blackburn sued the company for causing a couple to lose almost $1 million in retirement savings, and a month before Shine Lawyers proceeded with its own class-action suit.
Dixon Advisory filed for voluntary administration in January and, on April 19, ASIC suspended its Australian Financial Services license. The court said that Dixon Advisory may resume providing financial services if it implements appropriate systems, policies and procedures to ensure its representatives act in their clients' best interests.
Stephen Longley and Craig Crosbie of PwC's Australia firm were jointly appointed as voluntary administrators of Dixon Advisory & Superannuation in January. Accounting Today reached out for comment, but has not yet heard back from the firm.
