Dixon investment committee actions warrant scrutiny: FAAA

The actions of the investment committee at Dixon Advisory should be placed under greater scrutiny in the upcoming Senate inquiry, according to the Financial Advice Association Australia (FAAA). 

The organisation’s submission for the Senate economics references committee’s inquiry into wealth management companies detailed its concerns about the investment committee structure at Dixon. 

It identified problems with the committee surrounding conflicts of interest, lack of independent research, and clients being pushed into in-house products.

Dixon Advisory and related entities earned $134 million in fees from the US Masters Residential Property Fund (URF) between January 2015 and June 2018, and the FAAA estimated this could be even higher in reality. It is likely these fees influenced the decision to invest in the fund, despite its expensive operating costs, substantial property fees, and underperformance where the fund lost money in five of nine years between 2012 and 2020.

“This was not a case of individual advisers making their own decisions to recommend in-house products to their clients, but instead an investment committee that comprised people from across the different parts of the business who made overarching decisions with respect to how much individual clients would invest in each of the various URF-related product issues.

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“This is a case of a top-down decision for clients to invest, with the full knowledge of the related party benefits that would flow from increasing the amount of money invested in the URF.

“The lack of independent research on the URF was a very substantial warning sign, and it would be interesting to understand how the Dixon Advisory Investment Committee initially formed the view to promote the fund and to put it on their approved product list and why it was kept on the list throughout.”

It was the investment committee who “called the shots” about client investments, and the FAAA is concerned over how much power individual advisers had to overrule its recommendations. It also suggested the development of an “ethical support line” for advisers who have ethical concerns about such matters.

“It is unclear whether Dixon Advisory’s salaried financial advisers had the internal power to reject the recommendations directed to them by the investment committee. It was clear advisers were given little opportunity to fully consider the merit of these recommendations for clients. It may be necessary for advisers to have access to the opportunity to report these matters or to have an ethical support line to assist them to work through how best to respond.

“We believe that it would be appropriate to investigate whether any advisers left or were disciplined within the Dixon Advisory business for refusing to follow these directions.”

This should have been given greater prominence during the ASIC investigation, it stated, rather than an almost exclusive focus on the actions of the financial advisers. 

“ASIC chose to focus almost exclusively on the advice side of the business, reducing the prospect of finding evidence that might have enabled action against further directors and management. We believe that this approach failed consumers.

It recommended the Senate committee consider questions such as the investment committee’s governance arrangements, how decisions were made and the qualifications of members of the committee. 

• What were the “standard parameters” the investment committee used to determine the recommendations? 
• How were financial advisers informed about: the conflicts of interest for Dixon Advisory? The conflicts of interest within the broader Dixon business group? The apparent role these conflicts played in influencing the decisions of the investment committee? 
• Why did each financial adviser agree to present these recommendations to clients? 
• Did the financial advisers believe the recommendations were in each client’s best interest? 
• What level of detail did financial advisers have about the URF, its operations, and its risks? 
• Were advisers permitted to seek independent research on the products? 
• Did any financial adviser raise concerns (internally) about the: recommendation of decisions being made by the investment committee? Apparent conflicts of interest within the organisation? 
• Were any incentives offered, or potential repercussions spoken about, to encourage financial advisers to present the recommendations to clients? 
• Were there any clauses in staff contracts that influenced financial advisers’ decisions?

AFCA membership

In a separate recommendation, the FAAA said a firm’s membership of the Australian Financial Complaints Authority (AFCA) should not be “unreasonably extended” in the way that Dixon Advisory was. 

The extension of Dixon’s AFCA membership was from 8 April 2023 to 30 June 2024, and this resulted in over 2,700 complaints made by consumers. 

“We accept that this may include some genuine complainants who had been delayed in submitting their complaint. We fear, however, that it might also include others who have less basis and are doing it as it is free to them and may derive some benefit via the CSLR. 

“The complication for the advice profession is that we need to pay the AFCA fee of around $12,000 to process each complaint, irrespective of whether they are found in favour of the complainant, the AFCA member, or do not proceed to a determination.

“The cancellation of the licence should not be unreasonably extended. The two years and five months that was allowed for Dixon Advisory clients to complain was excessive. There needs to be a standard approach and clients need to understand that there is a limited window.”