AFCA found against Dixon in its landmark decision stating 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 of over $254,000 to its client in an SMSF.

In September 2022, the Federal Court imposed a penalty on Dixon Advisory for breaches of the best interest obligations concerning SMSF advice.

The complainant was a corporate trustee of an SMSF and was a client of the financial firm from 10 July 2012 to 2 September 2019 and stated the advice provided by Dixon Advisory was not appropriate for the SMSF during this period because firstly, the recommended asset allocation was too aggressive for its members, who said it was unnecessary to take on the recommended degree of risk to achieve their goals and objectives.

Secondly, the complainant said the financial firm was conflicted in making its recommendations.

According to the facts of the case, the SMSF trustees had specific goals for their investments which included an after-tax income of $80,000 (later $60,000); to accumulate wealth and minimise tax; to have the flexibility to alter the portfolio should their circumstances or financial objectives change; and to have access to some of their funds in case of unexpected emergencies.

In its defence, Dixon Advisory said its recommendations were appropriate for the complainant and that it managed any potential conflicts of interest per its obligations.

AFCA said in its decision that the breaches did cause the SMSF to incur loss stating that “but for” the financial firm’s failure to provide appropriate advice and act in the complainant’s best interests, and had it not breached the Conflicts Priority Rule, the SMSF would have been $254,312.72 better off.

AFCA stated that the outcome is fair because the advice was not appropriate for the complainant, nor in its best interests. It continued that the financial firm had not established that it had prioritised the complainant’s interests over its own in the provision of advice.

Ultimately, AFCA stated that Dixon Advisory deviated from its parameters for asset allocation when recommending certain investment products, and recommended investments in related entity investments like the US Masters Residential Property Fund (URF), which was a related party as Dixon Advisory stood to benefit from these investments.

The decision highlighted Dixon Advisory’s failure to diversify in a growth portfolio and found the firm’s recommendations were outside its asset allocation parameters, with a high proportion of related entity investments.

Whilst recommending related entity investments is not prohibited, if a financial firm does so it must be satisfied that the investments are in the best interests of the client and they are prioritising the clients’ interests over their own.

AFCA’s decision has three important implications for all other victims of Dixon Advisory’s collapse.

Firstly, any Dixon Advisory clients who have not yet lodged AFCA complaints should urgently do so and no later than 8 April 2024. Second, Dixon Advisory clients who have lodged complaints should review the decision against their individual circumstances, and gather and compile the key documents that AFCA will require to process each complaint.

Finally, SMSFs that used the service should not be wound up and 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.