The fallout from Dixon Advisory could have been far worse, according to Numerisk’s Richard Silberman, if the products hadn’t been isolated to one individual company.
Dixon Advisory collapsed in 2022 and saw its AFSL cancelled after problems with the US Masters Residential Property Fund (URF) which invested in residential property in New York and New Jersey.
The Federal Court subsequently found in September 2022 that representatives of Dixon Advisory failed to act in clients’ best interests and failed to provide appropriate advice when they advised clients to invest in the fund, and was penalised $7.2 million.
Since then, the collapse has led to a large levy of $18.1 million for financial advisers under the Compensation Scheme of Last Resort (CSLR) after the affected Dixon consumers made over 2,700 claims to the Australian Financial Complaints Authority (AFCA).
But insurance specialist Richard Silberman from Numerisk said the fallout could have actually been far worse if multiple advice practices had been recommending the URF product rather than it being isolated within Dixon Advisory.
He told Money Management: “If the product failure hadn’t been at one company and it had affected 100 different professional indemnity policies, the industry could have been paying the maximum for five years.
“We were very lucky with Dixon and it doesn’t get talked about; that product failure was concentrated in one business. If it had failed across 100 different ones, then that would have nuked 100 different PI policies and cost a full claim across every one of those policies.
“The net sum of that event would have cooked the industry and the PI insurance market for the next five years.
“I know that advisers are very unhappy, and they have every right to be, but from that lens, there was a stroke of luck and good fortune.”
Dixon Advisory has since been expelled as a member of AFCA, and a public inquiry has been launched by the Senate economics references committee to determine what caused the problems, which is due to present a final report in March 2025.
The inquiry has been tasked with identifying:
- The underlying cause of the collapse of wealth management companies such as Dixon Advisory.
- How the actions of directors of wealth management companies and related entities, senior management and individual advisers contribute to the collapse of these companies.
- The role of the financial services regulatory regime in the context of how matters involving the collapse of an investment product promoted by a vertically integrated business are assessed and how fault is attributed.
- Evaluation of the placement of wealth management companies into administration and the related insolvency issues, including with respect to the appropriateness of actions by directors and senior management and the transfer of advisers and clients to a related party entity for no consideration.
- Assessment of the period for which wealth management companies can remain a member of the AFCA.
The role of Australian Securities and Investments Commission (ASIC), including providing consumer information to investors affected by corporate collapse and consideration of the most appropriate arrangements for future cases of insolvency. - ASIC’s role in investigating corporate collapse and the appropriateness of any regulatory intervention that may reduce scale of loss for consumers.
- Options for enforcement action, including litigation, that ASIC has available to it in relation to wealth management companies following collapse.
- The implications of the collapse of wealth management companies on the establishment of the CSLR, including with respect to design considerations and the potential implications for future matters.
- And any other related matters.
