In her submission to the Senate economics references committee’s inquiry into wealth management companies, Jan Smith, who along with her wife were “personal clients of Alan Dixon” for part of their 15 years with Dixon Advisory, said the negative impact of the financial advisory’s collapse was “substantial”.
Following a long career in the NSW public service and running a consultancy firm for 15 years, Smith said the drawn-out process of receiving compensation, further delayed due to Dixon entering insolvency, saw the couple being part-pensioners, rather than self-funded retirees, which they had “never envisaged”.
“We could no longer afford the ongoing maintenance of our lovely home in Burradoo, near Bowral. We had to sell it and we moved to a retirement village in the Central Coast of NSW,” she said in the submission.
“It feels like we have moved to a different country and the negative impact on our lives and happiness from the actions of DASS has been substantial.”
Smith said that the couple had raised their concerns over the “obvious conflict-of-interest” of the firm providing advice on in-house products with Dixon in writing on multiple occasions, which was met with denials.
“DASS predictably denied a conflict of interest and in 2019 we chose to sever our ties with them after having been clients for 15 years,” she added.
“It was, of course, by then too late. We had lost a great deal of our savings. It meant that there were years of hard work wasted and our retirement plans were shattered.”
The couple has since received $150,000 from the Compensation Scheme of Last Resort (CSLR), which is the maximum that the scheme can pay out.
“We are very grateful to have received this amount, even though we lost considerably more than $150,000. We are not seeking further compensation,” Smith said.
In her submission, she argued that the ability of Dixon to both provide financial advice and develop their own financial products to promote to their clients was the “heart of the problem”.
“The risk of conflict-of-interest in these dual roles is mammoth as has been proven by DASS. I believe that legislation ought to be developed to make it impossible for companies to do so,” Smith said.
“Without such legislation there will always be ‘cowboys’ and ‘cowgirls’ who see ways to use their clients as ‘cash cows’ to satisfy their own greed. All financial advisers, in my view, should be truly independent financial advisers.
“Without this protection government initiatives such as the Compensation Scheme of Last Resort will collapse under the volume of claims and cost of compensation.”
‘Cynical and unacceptable’
In its submission to the inquiry, the Financial Advice Association Australia (FAAA) warned that this ability to avoid paying client compensation provides an “attractive” way out.
“It was evident that ASIC’s action and focus on financial advice files meant that these complaints would end up as ‘financial advice’ External Dispute Resolution (EDR) claims if Dixon Advisory remained a member of AFCA,” the FAAA said.
“In this case, it was clear that ASIC and AFCA were focusing their attention on financial advice issues. This provided an attractive ‘way out’ for E&P to avoid payment of client compensation.
“The fact that E&P Financial Group simply put its subsidiary Dixon Advisory into administration in full knowledge of the consequence for clients and the rest of the financial advice profession, and in the context of the expected establishment of the CSLR, is very concerning.”
Even more galling for advisers is that a large number of both Dixon advisers and clients moved across to a different E&P AFSL. ASIC detailed that about 3,280 of the 4,100 Dixon clients had moved to E&P, along with as many as 39 advisers.
“According to the administrator, this was all done at no cost to Evans & Partners and at no benefit to the creditors of Dixon Advisory,” FAAA general manager of policy, advocacy and standards Phil Anderson said in August.
Smith also pointed to E&P avoiding paying compensation through these actions in her submission.
“The morphing of DASS into Evans and Partners and the decision to enter voluntary administration on the part of DASS were, in my view, both cynical and unacceptable strategies designed to avoid accountability,” Smith said.
She added that, in order to avoid this possibility in the future, the government needs to legislate that companies found guilty of being in breach of the Corporations Act “be prohibited from morphing into another company or escaping into voluntary administration in order to avoid proper accountability”.
‘Offensive pittance’
The former client also took aim at the “hugely costly and cumbersome” voluntary administration process.
While Smith said Dixon’s administrators, PricewaterhouseCoopers, were a “professional organisation to work with”, it is the mandatory processes that need to be streamlined.
“I don’t have the expertise to provide a well-thought-out alternative model but I am putting in a plea, on behalf of future victims of financial service providers, for the process to be simplified,” she said.
“The combination of the intervention of a class action, the subsequent fees to be paid to the class action lawyers, and the huge costs associated with the work of the voluntary administrators, mean that the DASS clients will be left with a laughable, offensive pittance of compensation through the voluntary administration process.
“We are yet to know whether the amount of compensation provided by the CSLR will in fact be reduced by the pittance that clients will receive through the voluntary administration process. This uncertainty just adds insult to injury.”
On Friday, the FAAA’s Anderson argued that the experiences of former Dixon clients should not be forgotten through the Senate inquiry process.
“We are looking forward to the Senate inquiry hearings commencing and listening to those who really know what happened and how things went so wrong,” Anderson said.
“It is only with this knowledge that what needs to change can be identified and addressed. It is the CSLR that has helped to highlight what went wrong at Dixon Advisory.
“Understanding the Dixon Advisory story in detail will help to ensure that it does not happen again and that the serious problems with the CSLR can be fixed.”
