As the Shield and First Guardian failures look set to dwarf the scale of the $180 million Trio Capital collapse from 2009, the Association of Independently Owned Financial Professionals (AIOFP) has raised concerns the ultimate punishment for those involved will be similarly light.
According to AIOFP executive director Peter Johnston in a letter to MPs, the Trio Capital case and the still unfolding Shield and First Guardian failures have “exposed flaws in our regulatory regime that demands urgent legislative attention”.
Only one person saw jail time for the Trio Capital fraud, with Shawn Richards serving a two-and-a-half-year sentence despite being handed a maximum of three years and nine months for stealing $26.6 million.
“No wonder Shawn Richard behaved well in jail, he decided to endure the heat of the investigation/incarceration then disappear offshore with $26.6 million to fund his lifestyle,” Johnston said.
“It appears the perpetrators of the Shield and First Guardian frauds have chosen a similar path, put up with short term heat then enjoy their ill-gotten gains over the medium to long term by sending the cash offshore.”
The AIOFP head added that the law needs to be changed to “retain these fraudsters in jail until the offshore cash has been recovered, similar to the pressure put onto murderers who will not disclose the location of their victims”.
Turning to any of the financial advisers involved in funnelling clients into the fund, Johnston said: “All of the guilty advisers involved should be banned for life or incarcerated depending on their level of involvement.
“It is so unfair that less than 1 per cent of the advice profession can taint the reputation of all other professional advisers.
“The lesson from the 2011 Senate inquiry into the Trio fraud was the poor performance of the trustees, auditors, research houses, fund managers, ASIC/APRA and the same failings apply to the Shield/First Guardian fiasco some 14 years later. We are pleased that Macquarie Bank have agreed to pay $320 million for their incompetence, we expect the other stakeholders will also contribute.
“The days of unfairly blaming financial advisers for product failure are behind us.”
Last month, Johnston called for a royal commission into ASIC and the managed investment scheme process, arguing that the long-standing focus on financial advisers as scapegoats has allowed other stakeholders – including ASIC, APRA, trustees, custodians, auditors, research houses and institutions – to evade responsibility.
“For the last 30 years MIS has protected ASIC from litigation with their ongoing flawed conduct but it has thrown taxpayers ‘under the bus’ with consumer protection,” Johnston said.
“ASIC/APRA, trustees, custodians, auditors, research houses and institutions have evaded accountability with their role when financial products fail, they have cleverly, unfairly and most times collectively spun the blame onto financial advisers whilst slithering away for legal cover.”
He added: “It is time to drain the Canberra bureaucratic swamp with a royal commission to protect consumers.”
I’m one of those suckers who was conned into a phantom company while my advisor had shares in the business drained his money out and then they used the investor funds to buy a public company and issue shares in his mates and relatives names while leaving us investors in a company with no assets.
Advisor will probably go to jail for small sentence according to his lawyers and afca don’t have the balls to get back the proceeds of the crime.
Asic afca and ato staff have also been caught up this mess as well – it’s not rocket science to take back what isnt theirs and give it back to those who deserve it.
People power and a few good politicians would not have discovered the unlawful conduct with the operation of The Robodebt scheme. Blaming the victims would have continued except for the Royal Commission. The same victimisation occurred with the self-managed superannuation funds caught up in the Trio Capital fraud. Letters by the Trio victims to the National Anti-Corruption Commission of perceived conflict of interest and corrupt conduct by public officials that handled the Trio fraud were dismissed by the NACC, saying it found no corrupt conduct.
Guardian and Shield stand to receive compensation under the Compensation Scheme of Last Resort (CSLR) for exactly the same reasons why the Trio victims were denied.
Makes you wonder why the Trio Capital saga was not retrospectively funded by the CSLR yet the Dixon Advisory was retrospectively funded. I know one company was based in canberra and had links to the public sector and politicians, and just had an inquiry into their collapse cancelled. It certainly makes you wonder……
This sounds like Johnson is supporting AIOFP director Crole, by trying to blameshift from the licensee to the ARs. By all means Merhi and a few others should be the primary focus for punishment. But the licensee is ultimately more culpable than all the junior ARs in the process, who were just doing what they were told by their dodgy bosses. The licensee had the power and the responsibility to stop this whole scam well before it got out of control, and they failed to do so. The only question is whether that failure was due to negligence, incompetence, or commercial conflict.
100%. The licensee knew everything.
I couldn’t agree more. Thank you Peter Johnston
The finding from 2009 was that people didn’t understand what roles various participants play.
9.21 The regulators, custodians, research houses and financial planners all expressed their frustration at the inability of Trio’s internal and external auditors to verify information in financial statements. The auditors cite the limitations on their role and emphasise that the primary responsibility for detecting fraud rests with the responsible entity. The committee strongly endorses ASIC’s forward program to improve the rigour of compliance plans, the auditing of these plans and the composition and governance of compliance committees.
9.22 The committee also supports ASIC’s work in relation to custodians. The collapse of Trio Capital has exposed the very limited role of custodians in Australia. The Trio custodians stated that they do not have the expertise to question underlying values of either domestic or offshore funds. The committee believes that ASIC should consider changing the name ‘custodian’ to a term such as a ‘Manager’s Payment Agent’.
9.23 The committee is also concerned that the reports and ratings of research houses are misunderstood by investors and give false security to investors. It is important that investors and advisers realise the limitation of custodians’ role. [Should that be Researchers’ role]
Surely the token Asic ethics course should’ve solved this lol.
Surely the staff and management at InterPrac who recruited, licensed and enabled these crooks whilst taking hefty dealer group splits and turning a blind eye to compliance given the volumes coming in should also be banned from the industry and / or incarcerated?
But then what would you do with Macquarie and Equity Trustees. They were aware of the volumes and have statutory obligations to do due diligence. Should we incarcerate the Macquarie CEO?
What about SQM Research? Should they incarcerate Louis Christopher that has already admitted to failures in the research reporting of Shield and First Guardian – which advisers relied on. These SQM Reports said there were no corporate governance concerns.
How much in revenue did Macquarie and SQM make off of this initially???
Royal Commission into ASIC would be a great idea.
“The days of unfairly blaming Financial Advisers for product failure are behind us.”
Kindly thoroughly investigate the financial planner they crucified for alleged insurance churning, receiving commissions, recommending inferior products. If ASIC, thoroughly initially investigated this matter properly not just rely on manipulated and incomplete information, they would’ve seen the truth (ASIC realised this on the judgement).
This financial planner did not receive upfront/ongoing commissions (ex-boss received it ALL), transfer form presented was the incorrect transfer form (no date & for different product), recommended product had better features/benefits and significantly cheaper premiums, applications had a reference number before assessment, Expert Report confirmed no formal warnings provided and no compliance failures while this financial planner was employed with his ex boss. These are all facts.
Take accountability. Stop Scapegoating.
This is 1 financial planner. This financial planner wanted to genuinely assist the community and this ASIC complaint came after a year and a bit, practice commenced.
What a misleading and unfair statement that implies ALL advisers caught up in this deserve to be permanently banned, forever. ASIC have said there are 140 advisers under watch for all this. How many of these advisers were actually responsible or at the top directing these? How many were driving lambos or had nice watches, wads of cash and mansions? There might only be 10 or so main culprits responsible for all this. Sarah Court even said in the hearing to Hume that good advisers were at the end of these chains (unfortunately). Should good advisers who acted reasonably, on good faith, be banned for the fraud committed by others? ASIC’s banning powers should be for protective purposes, not punitive, yet they’re trying to ban as many advisers as possible to make them look good to take the heat off themselves for their own failings. If ASIC had of used their powers under S.601FF to actively check new schemes early in their lives when they were tipped off in 2022 (used only once in nearly a decade), they might have actually protected thousands of investors, and the good advisers that have been caught up in this. Yet they will swing the axe on the low hanging fruit of banning advisers even if they weren’t at fault or responsible. How is this not punitive?
If you put your name to the advice, and don’t understand what’s under the hood of the investments, then you deserve what’s coming.
Half the advisers in Australia do this really well and the other half dont. Do industry fund advisers understand whats under the hood of their investments? No chance. Most would just follow the mandated model portfolio and have little to no control on the investments decisions.
There is speculation of advisers names being put on SoA documents without their knowledge.
Also your comment about not understanding the investment is misleading. The funds collapsed due to fraud and misappropriating clients funds. Not too sure how an adviser could have prevented that when so many other parties worth millions failed in the due diligence processes before it got to the advisers desk. Risk and Governance teams at the trustee level have all the resources at their disposal compared to a FA who is heavily reliant on their company and Licensee system and processes.
Even the auditors failed!
Look at the raft of recommendations already happening. This points to clear systemic failures!
Again, this industry always shifts the blame to easiest targets whilst the people at the top get away with a slap on the wrist time and time and time again.
Yep, if you are a licensee or CAR manager, then by all means. But not if you are a junior, powerless, adviser doing what they are told by the licensee and CAR manager who have power over them and are supposed to be the experts.
The current licensing model enables dodgy licensees and CAR managers to leverage up their inappropriate practices, through the power bestowed on them over innocent, well meaning advisers.
The person who ratified and strengthened this appalling model when he had the opportunity and support to fix it (Hayne), deserves much of the blame for this and many other avoidable disasters.
Advisers did know what was under the hood — because the Statement of Agreed Facts between ASIC and Macquarie confirms that the SQM Research Reports clearly stated the Shield Master Fund (Balanced Class) invested into two existing strategies — 80% Watershed Multi-Asset Fund and 20% Chiodo Diversified Property Fund.
Anyone could look up those strategies. Watershed’s portfolios had years of published SQM-rated performance, and the Chiodo Diversified Property Fund also had its own return history. So the claim that Shield had “no performance record” just doesn’t hold up.
The real issue isn’t that advisers didn’t ask questions — it’s that Macquarie, as the platform trustee, had the obligation under s52 of the SIS Act to ensure proper due diligence on every investment option offered through its platform. Advisers relied on information from SQM — an independent research house — just as they’re entitled to. What failed here was the trustee oversight, not the adviser process.
He said any FA found GUILTY in this should get a life ban, not any FA caught up in this.
Dont confuse a banning with being guilty of fraud or conflicted rem. There will be advisers caught up in this who had less than a handful of clients, over a matter of only a few months before leaving, who will be found guilty by the judge, jury and executioner (ASIC) issuing a banning regardless.
This to try save face for ASIC’s own failings
Agree that the advisers who perpetrated this scam need to be heavily punished. However it’s not appropriate to heap blame on junior, powerless, advisers who were doing what they were told by their employer and/or licensee. The real solution is reform of the licensing model so that individual advisers have more independence and power, and are not subject to manipulation by a licensing model that was designed for product distribution.
Hayne deserves much of the blame for failing to fix this obviously flawed model, and for actually making it worse by giving more power to product aligned licensees.
Why dont you start by kicking the guilty advisers out of the AIOFP?
Totally agree. All those responsible should get serious jail time.
As to the regulators they need to act a damned site faster when complaints are made and not wait until the horse has bolted before shutting the gate. Not make excuses for there ineptitude.
AIOFP preaching on this seems ludicrous given their history
United Global Capital Financial Advisers seemed to have lasted anywhere from 3 months to 9 months. “My boss said it was on the APL, researched, and the expected return is 12.343894782156%.. what else do I need to know.”
About time we start widening the net of “relevant providers’ to include the guy cracking the wip, and the middle managers. Not to mention the role of trustees, Directors, research houses etc etc.
First Guadian Investors would have been quite happy living in fairy land, mislead, decieved, tricked, into getting there 7.5% returns whilst the Directors ripped them off 3% per year. I would bet my house they’d be happy for the next 20 years, whilst those Directors drive around in the Massarati, …maybe… if only ASIC hadn’t shut it down. Alas someone in ASIC misread the modus operandi. “stick to blaming & banning advisers, and only advisers, don’t do any other enforcement work”…About time we look at Sleepy Joe AKA ASIC as the main player in this dance.
This is a confusing article and contradictory with the term ‘adviser’. An adviser relies on a target market determination and approval on a platform. I could almost count on one hand the number of advisers whom makes an ‘independent’ judgement on a clients investment without a licensee’s direction that is tied to commercial decisions and scalability. This is for institutions, smaller practises that utilise a model portfolio or a SMA. The Shield fund as an example is a product failure. The platform and Macquarie in this case approving it on their platform. I would be interested to know how it got approved and so quickly and Macquarie willingly refunding all clients minus any interest. An investment is not guaranteed and nor is fraud nor mishandling of clients funds. For the adviser with the information that was available may have seen the fund as being a good option based on its underlying holdings and diversification 80% shares and 20% property. To then have the shield fund under so much scrutiny for misapproation of funds I am unsure how any reasonable adviser would have objectively looked at it and say there is a potential case of fraud and that the fund will not act in the investors best interest. If the fund was operating like it said it would advisers would not be under the spotlight. An adviser generally only has access to a PDS, TMD and these two bits of information have to be correct. It had come to light with the Shield fund that the PDS was incorrect and misleading. My conclusion is what would happen to an adviser under a big 4 bank where if this scenario happened?
As usual, here is Peter Johnston standing up for the advice community whereas FAAA sleeps. Well done mate and thanks
Let he who is without sin cast the first stone.
Well, we are never in any doubt about what Pete J thinks!!not sure another Royal Commission will resolve this, large fines and voluntary compensation will certainly place a greater focus on compliance by institutional managers.
In the rush to ban advisers, too little attention is being paid to the deeper structural failings that allowed these catastrophes, and to the fact that clients remain the true victims.
Some advisers genuinely benefited from conflicted remuneration and made questionable choices — no argument there.
But plenty of others were salaried financial planners following employer product menus and compliance directions. These folks often had as much say over the product lineup as the barista has over the price of your flat white.
Lumping both groups together and handing out identical “life bans” feels like punishing the passenger because the driver sped through the red light.
Even the article points out that trustees, auditors, custodians, research houses, and regulators all missed critical warning signs.
If these professional gatekeepers — armed with legal teams and compliance budgets — didn’t catch the red flags, how realistic is it to expect every adviser on the ground to do so with little more than a PDS and a compliance checklist?
Before we throw the book at advisers, we should ask:
What tools or authority did the average adviser have to dig deeper?
Most of them relied on the same disclosures and research that all the other “grown-ups in the room” relied on. If that whole chain failed, we need to fix the chain — not just hammer the last link.
Sure, if someone took conflicted commissions, that’s a serious breach and deserves strong consequences.
But the blanket approach risks punishing advisers who were simply doing their salaried jobs under the systems they were given.
Maybe we should reserve the life bans for those who truly deserved them — and focus the rest of our energy on building better safeguards and transparent product governance.
What about people pushed into SMSF’s by advisors they received no compensation in the Trio failure but despite new protections and unimplemented recommendations advisors still pushed SMSF’s invested into First Guardian on the pretense it was a safe diverse fund these people in most cases have large balances and the CSLR will barely scratch the surface of their losses.
It’s not often I agree with Peter J, but this is one of those occasions.
Media reports suggest that Garry Crole controlled entities were involved in this stuff up to their bottom lip. The reports highlight some “interesting” practices around negative consent & “cookie-cutter” style advice. It appears that Crole denies everything & is trying to slide out of it by pointing the finger at his advisers out on a frolic of their own without his knowledge…doesn’t that lead to a lack of oversight & control? Crole is also pointing at super fund trustees claiming they were deceived.
I guess we’ll be looking at yet another slap on the wrist with a wet lettuce for those involved.
Back to Peter J’s comments, I think he has just thrown his fellow Director (albeit non exec) of the AIOPF under the proverbial bus! A quick check on the AIOFP website shows that Crole remains a non exec director. Might be time to review that, Pete.
Finally, I have it on very good authority that ASIC were notified on multiple occasions of these shenanigans at least 18 months ago, and (as usual) did nothing, so they deserve an uppercut & should share in remediation costs…Ha! I hear you say, good luck with that!!
popcorn is popping……
Well done yet again Peter. Pity about the deaf ears. Time to wind up the masses!!
The ‘rotten apples’ who are the Financial Advisers in the Shield/First Guardian scheme, are in fact a small minority of the overall Advice Industry. We can certainly do without them. But the fact is, when working in concert with other profiteers in this business, they are also at least partly responsible for the losses of their own clients. This will no doubt continue. While this industry revolves around money, it is only to be expected that people primarily motivated by greed, or if not motivated, easily tempted when the opportunity is presented, will seek to become part of it. We need, as an industry, a far better ‘vetting’ process, that could involve ethical screening, including relevant psychological testing. It is NOT sufficient to hide behind compulsory ‘education’ in Ethics, as is currently the case. Teaching somebody some principles is no guarantee they are the type of person who will put those principles into action in everything they do. Let’s at least use the well developed screening and testing technology we already have available through Psychology, and behavioural video responses for interview applicants. We used it in the 1980s to screen out the wrong type of prison officers when attempting to reform prisons, so we can’t say it is not available. It’s time to get tougher and set a much higher ethical standard of entry to our profession as Financial Advisers, or the rotten apples will keep coming in to our otherwise caring profession.
Max HART – Psychologist and retired Financial Adviser
The most prominent adviser involved in the Shield and First Guardian debacle, who ran the Venture Egg business, Ferras Mehri, was an AIOFP member. The Head of the licensee responsible for Ferras Mehri is an AIOFP director. It appears that this mess is a bit close to home for the AIOFP to be pointing the finger at others.