Safe harbour law leaving consumers vulnerable with conflicted advice

His comments come amid criticism of Evans Dixon’s heavy promotion of its own US Masters Residential Property Fund (URF) to its clients, as well as their reliance on the fund, which Mr Stackpool said accounts for 67 per cent of Dixon’s total group revenues.

The Evans Dixon Group of companies includes Dixon Advisory & Superannuation Services, a financial services company that provides accounting and investment advice to SMSF trustees.

Drawing attention to this ongoing conflict in the financial services industry, Mr Stackpool said the law fails to protect the consumer from vertically integrated business models such as Evans Dixon’s, saying “the fact there’s a conflict of interest is irrelevant under law”.

Further, he said a contributing factor is the client’s trust that their adviser has done due diligence on the recommended funds.

“That is what people pay for. And when they’re getting poor advice, they still don’t leave. There are often high fees on turnover of assets, which makes it harder to close funds,” Mr Stackpool said.

“People are busy, they don’t have time to do all the research, and they trust their adviser to do the right thing. And a lot of these institutions know this.”

Mr Stackpool said while the URF Fund’s complicated, multiple-fee structure is relatively rare in Australia, conflict of interest between advice and product is not.

However, he said there are ways advisers can look after client investments into the future.

“First, consumers must learn that the ‘safe harbour’ law does not protect all their interests. Trust in financial advice cannot be built when conflicts (perceived or real) are present,” Mr Stackpool said.

“It all comes down to how advisers are paid: disclosure is not enough. Remuneration structures drive culture; unconflicted remuneration where clients pay for advice directly rather than advisers being paid from products is the best way.”

FinBiz Advisers principal adviser Annette Pulbrook said it would be interesting to know if Dixon had been advising its clients to sell out at any point.

“They’d turned off the management fees for the URF in 2017. Now they’re in damage control against a potential shareholder revolt, as clients have not only been losing money in some of their Dixon investments, but also from their Evans Dixon shareholdings,” she said.

“I suspect Dixon is less worried about the quality of their advice, and more concerned their clients may be turning on them.”

Huon Financial Planning principal Anne-Marie Humphries said conflicted advice is being about “ticking boxes”.

“Vertically integrated institutions know how to tick the compliance boxes under the existing framework to protect themselves, while still recommending ‘in-house’ products to their clients. It may not be the best option for the client, but it’s legal, and they can do it,” Ms Humphries said.