Make all Shield/First Guardian parties pay says FAAA
The Financial Advice Association of Australia (FAAA) is canvassing the Government introducing a regime to have “all of the contributing parties” underwrite compensation of investors caught up in the Shield and First Guardian collapses.
The FAAA’s Phil Anderson has written that the collapses highlight the need for reforms to the financial services complaints regime including “a mechanism to negotiate a settlement across all of the contributing parties, in order to deliver a timely solution that does not simply rely on the Compensation Scheme of Last Resort (CSLR).
He has also suggested significant modification of Australian Financial Complaints Authority (AFCA) rules to allow complaints against investment funds and superannuation funds “including with respect to the decision to include an unsuitable investment fund on an investment menu and failure to take sufficient action in the context of warning signs related to investment products and business practices”
Anderson has also pointed to the need for “changes to the law to allow complaints involving financial advice to attribute loss to other parties, even where there are breaches of the core advice obligations, such as the Best Interests Duty and the appropriate advice obligation”.
He referenced a briefing provided by the Australian Securities and Investments Commission (ASIC) to a Parliamentary Committee noting that the failures around Shield and First Guardian “extend across the value chain, including the following:
- The responsible entities and fund managers who built these products and managed them.
- The research houses who assessed and rated these products.
- The superannuation funds, who agreed to add these products to their investment menus.
- The advice licensees who added these products to their Approved Product Lists thereby giving permission to their advisers to recommend these products, while also operating with limited adviser oversight.
- The advisers who recommended to clients to invest in these products and evidently in some cases moved client money without ‘positive’ consent.
- The telemarketers and cold calling companies who identified potential clients and convinced them to take action.
- The auditors who it seems failed to call out the warning signs and likely misconduct within these firms in a timely manner.
“ASIC have made it very clear, including during a presentation to the Parliamentary Joint Committee on Corporations and Financial Services on 18 September 2025, that all of the above sectors are in the spotlight and are likely to be the subject of regulatory action and potentially contribute to client remediation.
“That is important, as those who have done the wrong thing need to be held to account,” Anderson said.
I’m glad to see the FAAA getting behind this idea.
Everyone in the financial services ecosystem knows that whenever anything goes wrong, the only party that will be held to account will be the AFSL and their PI insurer. This knowledge has led to a supply chain-wide culture of box-ticking compliance.
We’ve created a whole professional compliance class that goes through the motions, safe in the knowledge that they’ll never have to cut the cheque if a client loses money… that’s what the AFSL is for. Compliance in the supply chain is largely performative – it’s virtue signalling without the virtue.
The system needs to be restructured so there are teeth and hard cash accountability risks for all the participants that get to influence and handle client funds. I don’t like giving AFCA more powers – they’re getting too big for their boots as it is and starting to act as quasi-regulators – but in this instance they do need the right type of powers to review a disaster when it happens and apportion consequences and liability.
It’s a fairly easy change to make and doesn’t need the drama of legislative change. The recent “voluntary” decision by Macquarie to compensate victims with a $321m payment should become hard-wired into the system and something that can be expected when there are system-wide risk management failures in the future.
The current model where advisers and their licensees are the sole fall guys while research houses, platforms, super funds, and product manufacturers walk away unscathed is exactly why we keep seeing these failures. Everyone else in the chain gets to play compliance theatre while the adviser holds all the risk. That needs to change.
While the wider adviser community does indeed take the risk via the CSLR whcich I dont think is fair, let’s just remember that it was a small number of advisers who broke the law in taking payments under the table in this whole sorry mess. They have been hiding behind the ratings report which was actually a relatively low investment grade. Most advisers know one should tread with some caution on such more neutral ratings. But no. Not these guys. Good god, they even moved investors money over without their consent!
For sure these Advisers need to be locked up and stripped of any & all Assets to put into the repayment pool.
AFSL has plenty to answer for too.
But the main point is the rest of chain, MIS’s, Platforms, MIS Responsible Entities and Auditors, Research, ASIC etc all need to be held to account too.
Disclaimer: I had no client monies in the funds.
How do you know that payments were taken under the table ?
I haven’t seen any news to that effect ?
Read up on the so called “marketing fees” Venture Egg charged. It’s all laid out on ASIC’s last statement against its CEO . We are talking many millions of dollars. Its likely to be one of the key reasons why the funds failed as these illegal payments came out of the actual funds.
How did they move investors money over without their consent? If their previous super fund released their money without consent, surely they are are culpable too?
They had what was called a “Negative Consent Model”. They would send an email to their investors stating they are going to move their portfolio into the dodgy funds. If they didn’t her back from the investors within a certain period of time, it would be assumed they have consented.
Are you saying the client’s former super fund processed a rollover withdrawal, based purely on a third party adviser’s notification of assumed consent?
IMO this is the wrong approach, or at least a half-baked one that risks more harm than good. Let me unpack why:
It Could Dilute Real Accountability: Forcing a “negotiation” among all parties sounds collaborative, but in practice? It’s a recipe for finger-pointing marathons and watered-down settlements. Imagine a room full of lawyers from funds, platforms, and advisers haggling over who owns what slice of the blame. We’ve seen this in other sectors (e.g., class actions); it often ends in PR wins, not payouts.
Better to sharpen targeted tools: mandatory clawbacks for exec bonuses at failing funds, or personal liability for research house chiefs who gaslit junk.
Over-Reliance on AFCA Tweaks Misses the Root: Expanding AFCA’s scope to chase funds and auditors is fine, but without teeth like automatic fines scaled to assets under management or public “name-and-shame” dashboards it’ll just add more AFCA bureaucracy. The article nods to ASIC’s role, but why not empower them more for proactive audits instead of reactive complaints? And on the adviser side, yeah, some were shady (moving money without consent is straight-up theft), but painting the whole profession as the fall guy ignores how platforms and product menus enable bad choices. Fix the upstream incentives first: ban neutral ratings altogether or require dynamic risk scoring that flags volatility in real-time.
Unintended Consequences for Good Players: Broad “all parties pay” mandates could scare off innovation. Smaller research houses or niche auditors might bail on high-risk products, leading to thinner options for clients and higher costs passed down. Advisers, already under the gun post-Hayne, might get even more gun-shy, sticking to vanilla ETFs and ditching tailored advice. That’s not protecting consumers it’s shrinking their choices. A smarter pivot: tiered levies for CSLR based on past failures (e.g., funds with audit flags pay more), rewarding the clean ones.
FAAA’s plan, while well-meaning, feels like a band-aid on a broken system. It’s chasing fairness after the fact—making everyone pay—when the real win is stopping investors from buying into disasters. Education isn’t sexy, but it’s cheaper than endless compensation fights and builds trust long-term. Plus, it aligns with the article’s undercurrent: the system failed because too many players (and investors) didn’t ask hard questions.
MIS aren’t inherently evil, but their current form is a minefield for retail investors. sophisticated investors can handle them but for the average Joe, they’re too risky. My idea would be to make them listed and liquid would be a killer reform: it brings ETF-like discipline to a Wild West product, aligning with the article’s call for accountability without the bureaucratic baggage of “everyone pays.” Pair it with investor education, and you’re not just fixing a broken system you’re empowering people to avoid rubbish illiquid investment products.
This beats the FAAA’s plan from the article, which focuses on after-the-fact compensation. Turning MIS into listed products + education prevents the harm upfront, rather than cleaning up the mess later.
I’m reasonably certain you don’t understand why it might be preferable if not necessary for investments to be unlisted and I am absolutely certain you don’t understand liquidity risk.
You simply cannot just “make” MIS’s liquid.
You do understand that investor get compensated for liquidity risk – right ?