Thousands of investors who suffered significant losses after investing their retirement savings in the First Guardian and Shield managed investment schemes may find relief. Superannuation trustees that managed the platforms housing these investments have indicated potential “remediation” options. The Australian Securities and Investments Commission (ASIC) is currently investigating these failed funds, which have collectively resulted in losses exceeding $1 billion.
The spotlight has primarily been on “lead generators” who attracted investors and directed them to financial advisers who subsequently invested in these now-defunct schemes. However, attention is increasingly turning to the role of superannuation platforms, overseen by trustees, which facilitated these investments. These platforms, around for decades, allow financial advisers to invest client funds in various options, including shares, bonds, and managed funds.
Superannuation Trustees Under Scrutiny
Superannuation trustees, including Equity Trustees, Macquarie, Netwealth, and Diversa, authorized the inclusion of First Guardian and Shield on their platforms. When contacted, all four declined to comment on whether they would compensate investors from reserves. Last month, ASIC initiated legal action against Equity Trustees Superannuation for its alleged involvement in the $160 million losses linked to the Shield Master Fund. Equity Trustees has vowed to defend itself, emphasizing its compliance with fiduciary duties.
Equity Trustees’ managing director, Mick O’Brien, pointed to alleged misconduct by financial advisers and promoters, which are under ASIC investigation. Although these allegations have yet to be tested in court, the company remains committed to supporting affected members.
Operational Risk Financial Requirement (ORFR) and Investor Remediation
Sequoia Financial Group, under scrutiny for its role in the fund collapses, has informed investors about the possibility of obtaining “remediation” through the Operational Risk Financial Requirement (ORFR). This reserve, mandated since 2013, is designed to protect members from operational risks, including governance failures. However, whether these reserves can be used for investor compensation remains uncertain.
Sequoia’s CEO, Garry Crole, criticized ASIC and Macquarie for placing Shield into receivership, arguing that a viable alternative existed. He claimed that pursuing a Deed of Company Arrangement (DOCA) could have mitigated member losses. Despite efforts to represent affected members, Sequoia’s attempts were dismissed by the courts, which ruled that only trustees could act on behalf of the members.
Investigations and Industry Reactions
The ongoing investigation by ASIC into the First Guardian and Shield fund collapses has raised questions about the regulatory oversight of superannuation platforms. The Financial Services Council’s CEO, Blake Briggs, expressed concerns about the potential breaches of laws, including misleading conduct and conflicts of interest. He highlighted the need for high regulatory standards and preventive measures against fraud.
Sequoia’s involvement, particularly through its subsidiary InterPrac, has also come under scrutiny. InterPrac had authorized several advice firms linked to the fund collapses, leading to complaints lodged with the Australian Financial Complaints Authority (AFCA).
Compensation Scheme of Last Resort
Investors affected by the First Guardian and Shield schemes may also seek compensation through the Compensation Scheme of Last Resort (CSLR). This scheme compensates victims of financial misconduct when firms cannot pay claims. However, payouts are capped at $150,000 per consumer, and the scheme is funded by an industry levy on financial advisers, which has significantly increased.
Industry bodies, such as the Financial Advice Association Australia (FAAA), have criticized the current funding mechanism as “unfair and unsustainable,” advocating for broader sector contributions to cover the excess costs. The exclusion of managed investment schemes from the CSLR’s scope remains a contentious issue, given their role in substantial consumer harm.
As the investigations and legal proceedings unfold, the focus remains on ensuring accountability and exploring avenues for investor remediation. The outcomes of these efforts will have significant implications for the regulatory framework governing superannuation investments in Australia.
