AFCA slams Dixon Advisory, opens door for over 4,500 former clients

20 February 2024
Financial Services

AFCA has found against Dixon Advisory and Superannuation Services (Dixon Advisory) in a test case/lead decision that opens the door for more than 4,500 former Dixon Advisory clients to bring claims under the Compensation Scheme of Last Resort (CSLR) - but they must do so by 8 April 2024.

Key Takeaways

  • AFCA found Dixon Advisory failed to provide appropriate financial advice, failed to act in its clients’ best interests, prioritised its own interests ahead of its clients and awarded $245,000 to the client, an SMSF.
  • This opens the door for former clients of Dixon Advisory to make similar claims and improves the prospects of claims already lodged. AFCA has identified more than 4,500 potential claimants. Around 2,000 of those former clients have already brought claims with AFCA, but this means around 2,500 are yet to do so.
  • Claims must be lodged by 8 April 2024 in order for the CSLR to potentially respond and pay any compensation awarded.

The AFCA decision

The Australian Financial Complaints Authority (AFCA) released a lead decision late last week, finding that Dixon Advisory failed to provide appropriate financial advice, failed to act in its clients’ best interests, prioritised its own interests ahead of its clients, and that by doing so caused losses in excess of $254,000 to its client in that case, a self-managed superannuation fund (SMSF).  A link to the lead decision is here.

The crux of the decision is that, firstly, Dixon Advisory deviated from their own parameters for asset allocation when recommending certain investment products, and secondly, Dixon Advisory recommended investments in related entity investments like the US Masters Residential Property Fund (URF), which was a related party – Dixon Advisory stood to benefit from these investments. Approximately 40% (as at 2014) to 24% (in 2019) – diminishing primarily due to their value falling – of total investment by the SMSF was in Dixon Advisory related party investments.

Who might benefit from the decision

Dixon Advisory provided administration services and financial advice to more than 4,500 SMSFs. The information released by AFCA last week at Senate Estimates indicates that 1,948 complaints have been received by AFCA so far, valued at a total of $374 million.

This has three important implications for all other victims of Dixon Advisory’s collapse:

  1. Any Dixon Advisory clients who have not yet lodged AFCA complaints should urgently do so (and no later than 8 April 2024).
  2. Those Dixon Advisory clients who have lodged complaints should a) review the decision against their individual circumstances, and b) gather and compile the key documents that AFCA will require to process each complaint.
  3. SMSFs should not be wound-up – complainants should seek independent financial and legal advice about winding up their SMSFs before considering doing so, as a wind up may affect their claim with AFCA.

The deadline

Complaints must be lodged with AFCA by 8 April 2024 in order for the Compensation Scheme of Last Resort or CSLR to potentially respond and pay compensation

Approximately 2,550 Dixon Advisory SMSF clients who have not yet lodged a complaint have until at least 8 April 2024 to do so. They have ‘at least’ until 8 April 2024 because the Australian Financial Services Licence (AFSL) held by Dixon Advisory was cancelled by ASIC on 5 April 2023. Dixon Advisory is required to remain a member of AFCA until at least 8 April 2024.

If or when Dixon Advisory ceases to be a member of AFCA, which may be on or after 8 April 2024, the ability to claim against it in AFCA will lapse. Any Dixon Advisory clients who have not brought a claim by that point may not be able to participate in the Commonwealth Government-operated CSLR. The CSLR is designed to pay out compensation awarded by AFCA where the Financial Firm in question has entered external administration.

It is unlikely Dixon Advisory will remain a member of AFCA after 8 April 2024. It is therefore probably now or never for the remaining SMSFs who have not yet lodged complaints.  

Although AFCA will require time to review and process all complaints, by submitting the complaint by 8 April 2024, eligibility under the CSLR is preserved.

As Mackay Chapman has previously examined, the CLSR has limitations – it only applies to successful determinations made in AFCA and is limited to $150,000. This may not cover all of the losses suffered by Dixon Advisory’s clients.  

However, the prospects otherwise of recovery from Dixon Advisory, which is subject to a deed of company arrangement, are slim at best, so it is better to have the option to participate in the CSLR than likely nothing at all.

Consider the implication of the lead decision on individual complaints

The lead decision sets an important milestone for the next step in determining how AFCA will approach review of the remaining complaints.

AFCA will now undertake a high-level review of the complaints to determine which it thinks fall within the scope of the CSLR, presumably because these will be prioritised.  

The lead decision is a comprehensive review of the facts in that case, which considers issues and principles that can be applied to a batch of similar cases, and it will no doubt aid determination of the other complaints, and should be closely considered by those who bring complaints, and those already with complaints before AFCA.

But the lead decision not a complete answer.

AFCA will be considering which characteristics of certain complaints endear them more to a CSLR outcome versus those that do not. AFCA will continue to consider each case on its own merits and not every case will have the same outcome.

AFCA complainants should review the lead decision carefully. It would be prudent to get independent legal advice about how the lead decision impacts the SMSF’s individual circumstances and its potential complaint, or the complaint it has already lodged.

Complainants should also ensure that they have gathered and compiled the key documentation requested by AFCA, which includes:

  • SMSF Trust Deed and investment strategy;
  • Correspondence (including emails, letters, etc.) received from Dixon Advisory in relation to investment recommendations;
  • Statements of Advice, Records of Advice and anyother advice documents provided by Dixon Advisory, such as copies of Fact Finds and Risk Profile;
  • SMSF financial statements available from when the SMSF became a client of Dixon Advisory to date;
  • A copy of the SMSF portfolio holdings as at 30June 2023 (if applicable);
  • Cash management account statement from 1 July 2022 if SMSF financial statements for the 2022-23 financial year are not available; and
  • Other information about the SMSF, including ABN numbers.

The effective collation of these documents is likely to assist AFCA in efficiently reviewing the complaint and providing the earliest possible outcome.

Get independent advice before winding up SMSF

Many SMSF trustees and their beneficiaries will be considering winding up their SMSFs, to reduce ongoing compliance obligations and associated costs.

Particularly now that a lead decision has been made and AFCA has flagged that it is moving forward with consideration of the remaining complaints, any winding up needs to be very carefully considered, as it may have implications for the complaint, AFCA’s ability to consider the complaint, and any potential eligibility for the CSLR. Note that these may well be different considerations to what a court would consider for the eligibility of beneficiaries of a wound-up SMSF, for example.

Therefore, trustees of SMSFs considering winding up should get independent financial and legal advice before doing so.

If you need assistance in considering the implications of the lead decision, or in navigating the complaint process contact us or another specialist lawyer in this field. Don’t waste time.

The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such. It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only. You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.