Public inquiry into Dixon collapse ‘essential’: FAAA

The Financial Advice Association Australia (FAAA) has stepped up its calls for a public inquiry into the circumstances that led to the collapse of Dixon Advisory, including how the impact of the scandal is flowing through into the Compensation Scheme of Last Resort (CSLR) and costing financial advisers.

Posting on LinkedIn, FAAA general manager policy, advocacy and standards, Phil Anderson, said that given the potential cost to the advice profession through the CSLR could reach $135 million, “our members are demanding to understand how this has got so out of control”.

“The answer is simple, it is all about the one entity – Dixon Advisory, which has generated a total of 2,773 complaints to AFCA, more than five times the annual number of complaints for the entire advice profession and multiple hundreds of millions of dollars in client losses,” Anderson said.

“How did things go so badly wrong? That is the question that we want to get to the bottom of. This is much more than just a few advisers providing poor advice. This is about an entire business that was focused on heavily selling in-house investment products, and one in particularly (URF), that turned out to be deeply flawed.”

The FAAA has also released a paper detailing the action that the Australian Securities and Investments Commission (ASIC) has taken against Dixon as well as the class action, which was settled in April; however, because both actions did not play out in the courts, “we really do not have the answers that we are looking for”.

“Some of what was said and done in this process will deeply surprise you. It is worth the read; however the inevitable conclusion is that the only way that we will really understand what happened, and who was responsible for this debacle, is with a public inquiry,” Anderson said.

“Raise your voice and join the calls for a public inquiry into Dixon Advisory.”

The FAAA paper argued that a public inquiry is “essential to get to the bottom of this”.

“There have been public inquiries in cases where the losses have been much less,” it said.

“The government needs to launch a full inquiry into Dixons, including the operation of the Compensation Scheme of Last Resort, to discover exactly what happened, and how the design of the CSLR can be improved to ensure that this never happens again.”

‘Easier to focus on the financial advice issues’: ASIC’s role

According to the FAAA, questions also need to be asked about the actions of both ASIC and the courts.

Pointing to the judgment in the Dixon case, the paper notes that the “quite amazing provision” in the first order makes it clear that the regulator would not be able to enforce any orders for “pecuniary penalties, or any costs order” against Dixon Advisory.

“Why would a regulator complete a prosecution of this nature without the intention of enforcing the penalty and collecting the costs order? Why wasn’t this made clear in ASIC’s media release on 19 September 2022?” the FAAA queried.

“ASIC has publicly acknowledged on a number of occasions since, that they do not expect this penalty to be paid. Dixon Advisory was placed into administration some eight months earlier. So why proceed with this case, incurring more costs, if there was never any expectation of the fine being paid?

“From a financial adviser’s perspective, why did ASIC continue to incur costs in this matter, if it never expected to recover the costs, when it was the advisers who would pay for it. Financial advisers paid for the action, and yet stood no chance of the costs being recovered to offset the ASIC Funding Levy.”

The FAAA also pointed to changes between the original action brought by ASIC and the ultimate outcome, noting that the failure to prioritise the interests of the client was “strangely dropped”.

“Why would ASIC drop this critically important part of the case that goes a long way to explain the reasons for why Dixon Advisory operated this way?” the paper said.

“It is obvious that the fees from the URF were a critical contributing factor. It is hard not to surmise that, for ASIC, it was easier to focus on the financial advice issues and not what was at the core of what really went on in Dixon Advisory and the broader group.”

ASIC’s decision to settle the case, even though the “enormous scale of the Dixon Advisory debacle was plain for ASIC to see”, also drew criticism from the FAAA.

“It had in fact issued a media release on 3 August 2022 encouraging Dixon Advisory clients to complain to AFCA as a matter of urgency,” it said.

“This call was particularly successful, so much so that by 7 September 2022, AFCA had received a total of 1,638 complaints from Dixon Advisory clients. However, ASIC had seemingly given up the opportunity to take further action.”

Ultimately, the FAAA said, there is no reason the details of what happened at Dixon Advisory should remain such a “tightly held secret”.

“It is not clear why ASIC pursued an action that placed virtually the entire focus on a group of financial advisers, who it also agreed never to pursue further. Unfortunately, after showing some real promise, the class actions provided little insight either,” it said.

“This can’t be left here. A public inquiry is essential to get to the bottom of this.”