This article is from the Australian Property Journal archive
ASIC has launched action against financial services firm Dixon Advisory in the Federal Court, alleging it failed to act in clients’ best interests when advising clients to invest in the ASX-listed US Masters Residential Property Fund between September 2015 and May 2019.
The fund (URF) has been under scrutiny due to concerns about the sustainability of its dividends, as its interest costs were outpacing rental income. It posted a near-$38 million full year loss after $48 million was wiped off the value of its residential properties in New York and New Jersey.
The corporate regulator alleges that a total of 51 separate instances of financial advice were provided to eight sample clients during the period, each of which resulted in two or more contraventions of “best interests duties” under the Corporations Act.
As well as failing to act and provide advice in clients’ best interests, ASIC also alleges that Dixon Advisory representatives “knew or ought to have known that there was a conflict between their clients’ interests and the interests of entities associated with Dixon Advisory within the Evans Dixon group, and failed to give priority to the clients’ interests”.
ASIC alleges nearly $136 million of fees were paid by the fund to Dixon Advisory and related parties between September 2015 and June 2018. The fund has been under particular scrutiny since a Nine Media report earlier this highlighted concerns about the sustainability of its dividends, as its interest costs were outpacing rental income.
The maximum civil penalty for contraventions alleged against Dixon Advisory is $1 million for each prior to 13 March 2019, and $10.5 million per contravention after that date.
US Masters Residential Property Fund (URF) was established by Dixon Advisory in 2011 to give investors exposure to the weakened US east coat residential property market, by investing in residential property in the New York metro area.
At the relevant time, Dixon Advisory paid substantial fees to several companies owned by Evans Dixon, including Dixon Advisory. Dixon Advisory and Evans & Partners merged in 2017.
Evan Dixon was the ultimate holding company of Walsh & Company, the responsible entity of URF since June 2015.
