After entering voluntary administration at the start of the year due to mounting legal liabilities, Dixon Advisory has been handed a $7.2 million penalty by the Federal Court.
According to court findings, Dixon Advisory was the responsible licensee of six representatives who did not act in the best interests of eight clients when they were advised to either acquire, roll over or retain interests in the US Masters Residential Property Fund or related products.
Additionally, if Dixon Advisory continues to provide financial services it must have in place “appropriate systems, policies and procedures” to ensure its representatives act in the best interests of clients.
In a statement released Monday afternoon, ASIC noted the comments from the justice presiding the case that found Dixon Advisory representatives did not conduct a reasonable investigation of the clients’ circumstances before providing the advice.
“In some cases, this inappropriate advice resulted in the client’s self-managed superannuation fund being insufficiently diversified and exposed to risk of capital loss,” ASIC stated.
ASIC deputy chair Sarah Court said the case highlighted the importance for licensees to ensure their representatives are taking into account their clients’ specific needs and circumstances.
“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,” Court said.
Dixon Advisory was also ordered to pay ASIC’s legal costs of $800,000.
Master of no domain
The US Masters Residential Property Fund is an ASX-listed property fund established in 2011 by Dixon Advisory which invested in the New York City residential property.
It’s share price was $1.54 during launch, reaching a closing peak of $2.30 in September 2015 but has performed poorly since the start of 2018 and is now only worth 30 cents a share.
ASIC commenced proceedings against Dixon Advisory in September 2020 over alleged conflicts, and both parties later entered into an agreement in July the following year.
Dixon Advisory elected to enter voluntary administration earlier this year as it expected mounting liabilities from a class action being pursued which it accused it of providing conflicted financial advice, as well as regulatory action from ASIC and AFCA.
Thousands of advice clients from the company were transferred or released to a replacement service provider with “most” being completed by April when its AFSL was suspended.
The issue placed vertical integration back into the spotlight ahead of the Quality of Advice Review despite ultimately being left out of the terms of reference, but vertically focused business models have nonetheless stressed how they differentiate themselves.
ASIC has encouraged Dixon Advisory clients to register complaints to AFCA if they want to be eligible for remediation through the compensation scheme of last resort and has written to former clients to let them know if they should make a complaint.
