Mulino signals Shield/First Guardian measures

ANALYSIS

It is a measure of the Federal Government’s consciousness of the current failings of the financial services regulatory settings that the Assistant Treasurer and Minister for Financial Services, Daniel Mulino, formally endorsed Macquarie Investment Management’s Shield compensation arrangements.

Mulino is currently confronted by the cost blow-outs of the Compensation Scheme of Last Resort (CSLR) and the inadequacy and unfairness of its funding arrangements, so a major platform owner such as Macquarie agreeing to compensate affected clients represented a political Godsend.

Indeed, Mulino would be more aware than most that the collapse of the Shield and First Guardian Master Funds are going to fuel complaints to the Australian Financial Complaints Authority (AFCA) for at least the next four years feeding into the cost of the CSLR.

If all the superannuation platforms which carried the Shield and First Guardian products were to act similarly to Macquarie in compensating clients, then it follows that there will be less pressure on the CSLR.

What all financial advisers know, is that just as Managed Investment Schemes (MISs) do not contribute to the cost of the CSLR, nor do the investment platforms even though they these days represent the most profitable segment of the Australian financial services sector.

Mulino, in welcoming Macquarie’s actions, made clear that he is alive to the workings of the Australian investment eco-system and the benefits which flow from companies taking responsibility for their mistakes and not, as some have done, outsourcing blame.

“As minister I am also engaging regularly with ASIC, my department, and with key industry stakeholder groups in order to better understand the drivers of conduct that have led to these collapses, and how we can work together with the sectors to implement sensible reforms that better protect consumers in the future,” he said in his statement around the Macquarie agreement..

“Potential misconduct within two large funds is itself deeply troubling. But worse in this case is the simultaneous failure of multiple layers in the system.

“We are seeing failings at every step of the value chain, including from lead generators, financial advisors, superannuation trustees, auditors, managed investment schemes and research houses,” Mulino’s statement said.

“Events like Shield and First Guardian are an important reminder for all Australians to be alert to high‑pressure sales tactics, including requests to make a decision on the spot, and ‘click bait’ online advertising.”

The question for AFSLs is how Mulino’s words translate into legislative and regulatory action, first in terms of his upcoming decision-making around funding the CSLR sub-sector cost over-run largely generated by the Dixon Advisory collapse.

Beyond that, he must know from the multiple submissions received by Treasury, that the current CSLR funding regime is neither equitable or sustainable whilst ever MISs and platforms are not part of the levy catchment.

What is already known about the Shield and First Guardian collapses have to be the catalyst for Mulino to oversee meaningful change.