The ‘safe harbour’ law is failing to protect Evans Dixon investors. What does this conflict mean for others?


Jim Stackpool

A feature in the recent AFR highlights the failure of the Hayne Royal Commission to address the loopholes in the ‘Safe Harbour’ law.

Criticism of Evans Dixon’s heavy promotion of its own URF (US Masters Residential Property Fund) to its clients, as well as their reliance on the fund, which accounts for 67% of Dixon’s total group revenues, is currently gathering steam.

While the URF Fund’s complicated, multiple fee structure is relatively rare in Australia, conflict of interest between advice and product is not.

Drawing attention to this ongoing conflict in the financial services industry, Jim Stackpool of Certainty Advice Group in Sydney states that the law fails to protect the consumer from vertically integrated business models such as Evans Dixon’s. “The fact there’s a conflict of interest is irrelevant (under law),” he says.

He believes a contributing factor is the client’s trust that their adviser has done due diligence on the recommended funds. “That is what people pay for. And when they’re getting poor advice, they still don’t leave. There are often high fees on turnover of assets, which make it harder to close funds. People are busy, they don’t have time to do all the research, and they trust their adviser to do the right thing. And a lot of these institutions know this.”

In recent years, the value of URF has turned down sharply, with more and more investors speaking openly about their losses. Annette Pulbrook of FinBiz Advisers in Warners Bay asks: “What would be interesting to know is if Dixon had been advising their clients to sell out at any point. They’d turned off the management fees for the URF in 2017. Now they’re in damage control against a potential shareholder revolt, as clients have not only been losing money in some of their Dixon investments, but also from their Evans Dixon shareholdings. I suspect Dixon are less worried about the quality of their advice, and more concerned their clients may be turning on them.”

CFP Anne-Marie Humphries of Huon Financial Planning in Albury sees conflicted advice as being about ‘ticking boxes.’ “Vertically integrated institutions know how to tick the compliance boxes under the existing framework to protect themselves, while still recommending ‘in-house’ products to their clients. It may not be the best option for the client, but it’s legal, and they can do it.”

As to how consumers can look after their investments to the future, Stackpool’s advice is simple: “First, consumers must learn that the ‘Safe Harbour’ law does not protect all their interests. Trust in financial advice cannot be built when conflicts (perceived or real) are present. It all comes down to how advisers are paid – disclosure is not enough. Renumeration structures drive culture; unconflicted remuneration where clients pay for advice directly rather than advisers being paid from products is the best way.”

By Jim Stackpool, Director

1 comment

  • iandsforrester says:

    We were clients with Dixon’s until recently and were advised as part of our SMSF to invest in URF. Within a short time the URF decreased, eventually reaching %52.89 percent of our investment. ($80,000 plus)During the decline everytime we spoke to our adviser we were not advised to sell and saying these would improve and to hang in. Eventually we had to demand they sell which they were not happy about. The other Dixon’s finger in the pie investments we are trying to get rid of with our new advisers.

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