Need to know
- In a CHOICE submission to the government, we call for an end to remaining conflicts of interest in the financial advice industry.
- We tell the heartbreaking story of a woman who suffered serious losses at the hands of fast-talking financial advisers.
- In a survey of 1200 CHOICE supporters, only one in three say they trust advisers to give them high-quality advice.
When the Future of Financial Advice (FoFA) reforms finally became a reality in 2013, it was the culmination of nearly 25 years of campaigning by CHOICE and other consumer advocates.
A centrepiece of the reforms was a ban on conflicted advice – where financial advisers make recommendations to their clients based on the commissions they stand to receive.
This longstanding practice had seen many consumers suffer financial losses at the hands of advisers who put their own interests above those of their clients.
That's why the reforms also included a 'best-interest duty' – an obligation that financial advisers put their clients' interests first.
Although the FoFA reforms changed the rules, they didn't necessarily change the industry.
Barbara's story
Just ask Barbara, one of many victims of the recent collapse of Dixon Advisory, a financial advice firm that seems to have operated as if FoFA had never happened.
Barbara spent 14 years working multiple, modestly paid jobs to build up her own self-managed super portfolio, made up of well-established companies with long-term track records. Her investment choices were at the lower end of the risk scale.
'They groomed me'
Barbara resisted the initial overtures by Dixon. But the firm's advisers came on strong, hyping big returns and leveraging the reputation of Daryl Dixon, a respected pensions expert, who founded the firm in 1986.
They groomed me for a couple of years, and then they moved in, sending me recommendations and backing them up with phone calls
It took a lot of persuasion to make Barbara sell-off her holdings in favour of Dixon's opaque scheme, but eventually she did.
"They groomed me for a couple of years, and then they moved in, sending me recommendations and backing them up with phone calls," she tells CHOICE. "They wouldn't hang up until they got a yes.
"I ended up losing all my confidence in my own investment ability and handed it all over to them, because they were the professionals. They just exploited the Daryl Dixon factor. He was held up as the guru of superannuation and wealth management."
Ads for Dixon Advisory in the financial press and on the radio also helped break down Barbara's resistance.
Compensation request
Barbara has asked for a maximum of $550,000 in compensation from the Australian Financial Complaints Authority (AFCA), but that doesn't include the dividends she'd still be receiving had she not allowed Dixon to shepherd her assets into its dodgy property fund.
Given the continuing rise in value of many of the shares she sold on Dixon's recommendation, she reckons she's lost a lot more.
Barbara says the Dixon advisers were relentless. When she asked them whether they were getting commissions, she says they said no.
It was scammer talk when I think about it now, but you don't see it as scammer talk when you're talking to professionals
"I'd get an information sheet, a recommendation, and then they'd follow up with a phone call," says Barbara. "They used every tactic in the book.
"They wouldn't get off the phone with you. It was like they knew something that you didn't. It was scammer talk when I think about it now, but you don't see it as scammer talk when you're talking to professionals. When I think now how stupid I was. I had all my blue chips, and they trashed them."
ASIC hits Dixon Advisory with $7m penalty
In September 2020, ASIC started legal proceedings against Dixon Advisory for providing conflicted advice and failing the best interest duty.
In July 2021, Dixon agreed to pay a $7.2 million penalty, plus another $1 million to cover ASIC's costs. (The court has yet to confirm the agreement.)
In February this year, the regulator suspended the defunct firm's financial licence.
Despite reforms in 2013 aimed at cleaning up the financial advice industry, consumer still have reason to be wary.
Trust in the sector still shaky
The FoFA reforms were meant to restore trust in the financial advice industry, but it seems consumers are still wary.
We recently asked 1200 CHOICE supporters for their views on the matter, and the results were telling.
Only one in three (33%) said they trust financial advisers or super funds to provide high-quality advice that meets their needs, and seven in 10 (70%) said they didn't trust financial advisers who get paid commissions.
Compensation scheme of last resort
Victims of failed financial services firms like Barbara have only one hope left – a government-backed compensation scheme to cover their losses.
Late last year, we reported on the collapse of the Sterling First investment scheme, which left about 100 older Australians financially devastated and, in some cases, without a place to live.
Victims of failed financial services firms like Barbara have only one hope left – a government-backed compensation scheme to cover their losses
As it stands, victims such as these who have filed a complaint with AFCA and won their cases would see any compensation capped at $150,000 – a far cry from the scale of Barbara's losses. And that's only if such a scheme is actually enacted. (CHOICE is calling for any compensation caps to be set in line with AFCA's limit, which is currently $542,500, just short of what Barbara is hoping to recover.)
As of August 2021, AFCA had a backlog of 1165 such cases, on hold until a scheme is established. Barbara filed a complaint with AFCA in January this year, but it's also on hold because Dixon Advisory went into voluntary administration in January.
'I just want something back'
With Dixon Advisory now undone and her money gone with it, Barbara is waiting anxiously for the government to step in. Trying to get in touch with her former financial advisers is not an option.
"They wouldn't leave me alone for years and then you couldn't get anyone to ring you or return your calls," she says. "They just went to ground.
They wouldn't leave me alone for years and then you couldn't get anyone to ring you or return your calls
"The compensation scheme has got to be increased. But it hasn't even been legislated yet. I just want something back from the mongrels."
What we're calling for
- A ban on all remaining conflicts of interest in the advice industry – including existing commissions, asset-based fees and 'vertical integration' (where advisers recommend products from the firms that pay them).
- Keeping the best-interest duty intact.
- Access to quality financial advice outside the professional financial advice industry, such as through government and other independent organisations.
- A compensation scheme of last resort for victims of financial misconduct.
Stock images: Getty, unless otherwise stated.
