Can you trust your financial advisor?
Almost 10 years after reforms were introduced to clean up the sector, the conflicting advice still applies.
fact checked
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He must know
- In a CHOICE submission to the government, we are calling for an end to the remaining conflicts of interest in the financial advisory industry.
- We tell the heartbreaking story of a woman who suffered severe losses at the hands of fast-talking financial advisors.
- In a survey of 1,200 CHOICE supporters, only one in three said they trust consultants when it comes to high-quality advice.
When 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 rights advocates.
One of the key pieces of the reforms was a ban on adversarial advice, whereby financial advisers make recommendations to clients based on fees likely to be received.
This long-standing practice has resulted in many consumers suffering financial losses from advisors who put their own best interests ahead of their clients'.
That is why the reforms also included a "best interest duty", an obligation for financial advisors to put the interests of their clients first.
While the FoFA reforms changed the rules, they didn't necessarily change the industry.
The Story of the Barbarian
Just ask Barbara, one of the many victims of the recent collapse of Dixon Advisory, a financial advisory firm that appears to have acted as if FoFA never existed.
Barbara spent 14 years working multiple low-paying jobs to build her own self-managed super portfolio of well-established companies with long-standing track records. His investment decisions were at the lower end of the risk spectrum.
"They took care of me"
Barbara resisted Dixon's initial advances. But the firm's advisers came in with a bang, touting big profits and capitalizing on the reputation of Daryl Dixon, a respected pension plan expert who founded the firm in 1986.
They looked after me for a few years, then moved on, sending me referrals and accompanying them with phone calls.
It took Barbara a lot of work to convince her to sell her properties in favor of Dixon's opaque plan, but she finally did it.
"They looked after me for a couple of years and then moved on, sending me referrals and backing them up with phone calls," she told CHOICE. "They didn't hang up until they got a yes.
"I ended up losing all confidence in my own investing ability and handing it over to them because they were the professionals. They just exploited the Daryl Dixon factor. He was promoted to guru of pensions and wealth management."
Dixon Advisory's advertisements in the financial press and on the radio also helped break Barbara's resistance.
right to compensation
Barbara has sought compensation of up to $550,000 from the Australian Financial Complaints Authority (AFCA), but that doesn't include the dividends she would still receive if she hadn't allowed Dixon to funnel her fortune into her dodgy property fund .
Given the continued appreciation of many stocks he sold on Dixon's recommendation, he feels he's lost a lot more.
Barbara says Dixon's advisors were reckless. When he asked them if they received commissions, he said they said no.
It was a scam now that I think about it, but you don't see it as a scam when you talk to professionals.
"I got an information sheet, a recommendation, and then they called to ask," says Barbara. "They used every tactic in the book.
"They didn't want to hang up. It was like they knew something you didn't. It was a scam now that I think about it, but you don't see it as a scam. scammers when you speak. " to professionals. Now that I think about how stupid I was. I had all my blue chips and they looted them.
ASIC fines Dixon Advisory $7 million
In September 2020, ASIC commenced legal proceedings against Dixon Advisory for conflicting advice and breach of best interest obligation.
In July 2021, Dixon agreed to pay a $7.2 million fine plus an additional $1 million to cover ASIC costs. (The court has yet to ratify the agreement.)
In February this year, the regulator suspended the defunct company's financial license.
Despite reforms in 2013 aimed at cleaning up the financial advice industry, consumers still have reason for caution.
Confidence in the industry remains fragile
The FoFA reforms should restore confidence in the financial advisory industry, but it seems consumers are still cautious.
We recently asked 1,200 CHOICE followers for their opinion on this topic, and the results were eye-opening.
Just one in three (33%) said they trust financial advisors or super funds to provide quality advice that meets their needs, and seven in 10 (70%) said they don't trust financial advisors who receive commissions trust.
Last Resort Compensation Plan
Victims of failed financial services firms like Barbara have only one hope: a government-backed compensation program to cover their losses.
Late last year we reported on the collapse of the Sterling First investment scheme which has left around 100 elderly Australians financially devastated and in some cases homeless.
Victims of failed financial services firms like Barbara have only one hope: a government-backed compensation program to cover their losses.
As it stands, victims like these who successfully filed a complaint with the AFCA would see $150,000 in compensation, a far cry from the magnitude of Barbara's losses. And only if such a regime is actually adopted. (CHOICE requests that any compensation cap be set in accordance with the AFCA limit, which is currently $542,500, just below what Barbara is expected to recover.)
As of August 2021, the AFCA had a backlog of 1,165 such cases pending the establishment of a program. Barbara filed a complaint with the AFCA in January this year, but it is also pending as Dixon Advisory went into voluntary administration in January.
"I just want something back"
Now that Dixon Advisory has been canceled and is out of funds, Barbara is anxiously waiting for the government to step in. Trying to get in touch with your old financial advisors is not an option.
"I wasn't left alone for years and then no one could call you or call you back," she says. "They just fell to the ground.
They wouldn't leave me alone for years and then no one could call or call back.
"The remuneration system needs to be increased. But it's not even regulated by law. I just want something in return for the bastards."
what we claim
- Prohibiting all remaining conflicts of interest in the consulting industry, including existing commissions, asset-based fees, and "vertical integration" (where consultants recommend products from companies that pay them).
- Keep the best-interest commitment intact.
- Access to quality financial advice outside the professional financial advisory industry, such as from government and other independent organizations.
- A last resort compensation plan for victims of financial misconduct.
Join the conversation
To share your thoughts or ask a question, visit the CHOICE Community Forum.
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