A little over 12 months ago, Dixon Advisory and Evans Partners were two separate financial services businesses with exceptional reputations. Now, the merged and listed entity’s reputation is in flames, being accused of serious conflicts of interest and showing little regard for their clients’ best interests.

To summarise:

Prior to their merge, Dixon provided strategic and administration services not dissimilar to HPW, however; rather than place clients’ funds into investments completely independent of their business, they recommended products managed by Dixon themselves, where they received significant additional ‘asset management’ fees. The most publicised investment ‘product’ is the URF, a US real estate fund.

Furthermore, the fund was highly geared, increasing the gross value of the fund and the fee received, and all property maintenance and renovation work was completed by, you guessed it, an inter-related entity, Dixon Projects.

Although the URF initially performed well, since the merge with Evans Partners, performance has turned horribly bad which has contributed to a 75% fall in the Evans Dixon share price.

Aside from the horrendous outcome for clients invested in the fund, at float the Evans Dixon investment was sold exclusively to company staff and clients on a 19 times earnings multiple, well above the market average! A double whammy to say the least.

I should also point out that that the float of the new entity netted the founders of Dixon Advisory and Evans Partners with around $10m each.

Financial Services businesses can be very profitable, and staff can be well looked after, simply by navigating themselves away from conflicts of interest.

The model is simple, obtain new clients and service the hell out of the existing ones. Then, demonstrate value by offering unbiased, independent advice and charge a reasonable fee to do so.

So why do so many financial services owners struggle with this concept? Greed. Plain and simple.

As the client base grows, some owners start to think of ways to obtain a greater ‘share of wallet’. A term which, to be frank, makes by stomach turn. Sadly, they know they can get away with it because of the trust their clients place in them. This trust is then abused.

Are clients to blame?

In short, no. However, as a colleague pointed out “these things only become an issue when things go bad”. This is true.

I would still argue the key issue is their abuse of trust.

Conflicts of interest, which are not illegal but need to be disclosed, simply aren’t worth it. Whether it be on the adviser’s side, or their clients’.

My advice to readers is simple, if a conflict of interest is identified, take a wide berth. While it may seem ok at the time, it’s not necessary and there are alternatives that remain in your best interests; always ask why does the conflict truly exist in the first place?