It’s unclear at this stage exactly how much the financial advisers working at firms like Venture Egg knew about the realities of the Shield and First Guardian funds.
There are solid grounds to argue that much of the advice was not in the best interests of their clients – from cookie cutter statements of advice that didn’t take personal circumstances into account, reports of “negative consent” being used, and heavily weighting investments in just one managed investment scheme.
However, it is also reasonable to surmise that the individual advisers were unaware of the broader issues with the funds’ management and were largely following the direction of people higher up than themselves.
This doesn’t absolve any of them of responsibility – they are professionals with a legislated duty to their clients that, based on available information, appears not to have been met.
It bears some similarity to the Dixon Advisory collapse, in which the firm’s investment committee determined the recommendations, and the advisers went along with them.
According to Central Queensland University researcher Dr Angelique McInnes, closing the distance between the position of liability and the client would help limit these kinds of situations and ensure that advisers are taking full accountability for their advice.
That’s where individual licensing comes in.
“I think the problem at the moment is the accountability isn’t clear-cut. Often you find an individual is managed via the AFSL, and the AFSL has responsibility towards preventing any compliance contraventions, but they can only do as much as they are willing to do within their resource constraints,” McInnes said.
“But also, when do they discover these breaches, and have they got the ability to do so within their network, especially if it’s a larger organisation?”
For instance, an Australian Financial Services (AFS) licencee may not be alerted to an outsized volume of SOAs being delivered or fail to act once they are aware.
In the case of Shield and First Guardian, Sequoia has stressed that once its subsidiary, InterPrac, became aware of Venture Egg investing “unusual volumes” into the funds, it “prudently” placed Shield investments on hold in June 2023 and did the same for First Guardian between June and September 2023.
McInnes added that ASIC also holds some responsibility for failures.
“I think partly it’s a resource constraint issue, and they’re far away from the individual. If it’s an individual involved, they’re further away from the individual to actually do anything about it, or they wait to see, ‘OK, how far will this person go’, and then it’s too late,” she said.
“When you look at it from [the perspective of] separating the AFSL from the individual and licensing them separately, their accountabilities will be separated. So, if it’s a licensee’s fault because of a product failure, it’s not the adviser that has caused a product to fail.
“The adviser has recommended a product that has failed but the adviser is not responsible for the product failure, it is the licensee.”
Similarly, when it is an advice failure, she said it can be hard for a licensee to discover that the adviser is failing in their duties or lacks knowledge.
“A lot of the issues around these failures that we’re seeing, in this these scandals, is the fact that accountability can’t be pinpointed clearly,” McInnes said.
“What’s happening, and I think it’s very unfair, it’s often the adviser that gets targeted, and it’s their fault, ultimately. But there’s been more than just the adviser involved in the whole process of giving the advice to this client.”
According to McInnes, an individual licensing system with self-regulation would empower the profession to handle issues of poor advice themselves, similar to the way doctors, lawyers, and accountants can.
“The majority of advisers would look at an individual who clearly gave poor advice, would look at their SOAs and be able to say, ‘This is unacceptable, you are damaging our reputation’ and they’ll get rid of him,” she said.
“Just like the accounting professions do and all the other professions where they are individually licensed through self-regulation. I think the advice profession, where it is now and what the advisers have been through, will be adamant that they want to protect their reputation, as opposed to an AFSL that has other vested interests.
“Not to say that they want to be unethical, but they sell product, they are in the business of distributing product. Then you’ve got the other AFSLs who are in the business to employ or contract authorised representatives to make money for them, so their product is more service oriented, but there’s a distance between them and the client.”
This final point is key for McInnes, arguing that if you want to stop contraventions damaging clients, the point of liability needs to be at the “closest source”, which is the adviser themselves.
“The main point when you licence advisers individually, any breaches will be at the individual level and those breaches will be identified by other advisers who do not want to see this sort of thing happening,” she said.
“It’s costing them a fortune with the CSLR, with ASIC breathing down their necks, having to constantly report to ASIC via their licensee, having constant scrutiny from many parties, including journalists and everybody else.
“Whereas, if they are able to do what other professions are doing, I believe it will make a huge difference from the adviser-client perspective, where the adviser is more accountable for what he’s doing.”
“What’s happening, and I think it’s very unfair, it’s often the adviser that gets targeted, and it’s their fault, ultimately. But there’s been more than just the adviser involved in the whole process of giving the advice to this client.”
It’s hard to shake the feeling that, in Canberra’s eyes, advisers are always the scapegoat—no matter the situation.
Everyone here could tell you the same story. But because we don’t have a PhD next to our name, our experience and insight seem to count for little. The reality is, Canberra doesn’t listen, and frankly, doesn’t seem to care.
And yet, it seems that if you are in the Canberra bubble, you don’t need a PhD to hold a position powerful enough to make sweeping decisions that consistently miss the mark and create more problems than they solve.
Because from where most of us sit, it looks like Canberra has a habit of elevating people with zero frontline experience and handing them sweeping regulatory power. These people spend years critiquing the advice profession from the sidelines, then get parachuted into positions where they can rewrite the rules—without ever having to live by them.
It’s not expertise—it’s ideology dressed up as governance. And the consequences fall squarely on the shoulders of those who actually work with clients.
Individual licensing and liability sounds a HELL OF A LOT BETTER than paying for other Dodgy Advisers and Failed or Fraudulent MIS.
One day, the government, regulators, associations, product manufacturers, licensees, advisers, the media, the public & the rest of the grubby noses will come to understand that vertical integration can never be permitted in the advice industry/profession. Until then, the circus will continue.
Yep but given ALP are about to green light the biggest vertical migration back packers FUM sales ever via Industry Super Funds.
Far less than zero chance corrupt Canberra will listen.
Very soon, this will no longer be an issue. Retail clients will gravitate towards the “safety” of super funds’ in-house advisers who will rely on AI for efficiency.
Financial Advisers will then have to compete with Private Banks to fight over Wholesale Clients or, join the super funds.
They’ll have one size fits all solutions for based on age. It won’t be driven by AI. Trustee technology with a lot of these funds is totally antiquated.
This’ll be cookie cutter advice on massive scale, delivered by people with no experience, limited qualifications and blessed by ideologically driven politicians with arguably massive conflicts of interest with certain preferred trustees.
Going to be spectacularly unfair for real advisers.
Apologies for the length, but this rebuttal is long overdue—academic arguments against AFSLs have gone unchallenged for far too long. Dr. McInnes’ individual licensing proposal fundamentally misunderstands financial services risk. When Shield and First Guardian collapse with $1 billion in losses, which individual adviser has the capital to compensate clients? The AFSL model doesn’t create “distance” from accountability—it creates essential infrastructure for consumer protection. AFSLs maintain capital reserves, secure group professional indemnity insurance at viable rates, and operate compliance systems that detected the “unusual volumes” in the first place. Under individual licensing, PI insurance would either be unaffordable for sole practitioners or provide token coverage that leaves consumers exposed to judgment-proof individuals.
The comparison to doctors and lawyers is deeply flawed. A doctor’s mistake affects one patient; an adviser’s error can simultaneously destroy hundreds of retirements. But more fundamentally, medicine and law deal with present problems using established knowledge—financial advice requires betting other people’s futures on unknowable market outcomes. Advisers must predict economics, longevity, inflation, and black swan events while managing capital that can evaporate overnight. This isn’t a profession built on stable expertise—it’s risk management at scale, requiring infrastructure no individual can provide.
McInnes’ “double agent problem” fundamentally misunderstands how professional relationships work. Every professional serves multiple stakeholders—lawyers serve clients AND the court, doctors serve patients AND public health requirements, accountants serve clients AND statutory obligations. The AFSL relationship isn’t a conflict—it’s a quality control mechanism ensuring advisers meet professional standards. If McInnes wants to eliminate double agents, she should recognize that individual advisers with no oversight become agents only of their own interests. Self-regulation is a fantasy disproven by history; every financial scandal occurred despite industry codes. Who would investigate complex misconduct in her model? The same advisers who missed Storm Financial? At least AFSLs have compliance teams, audit requirements, and regulatory obligations that create real accountability.
The Shield/First Guardian case shows AFSL supervision failures, not model failure. Yes, Sequoia’s monitoring was inadequate and their response too slow—but at least there WAS monitoring and coordinated response capability. Under individual licensing, there would be no centralized oversight at all, no ability to halt investments across multiple advisers, no capital base for compensation. The solution isn’t to eliminate supervision because Sequoia did it poorly—it’s to enforce better supervision. Individual licensing doesn’t fix bad oversight; it eliminates oversight entirely.
McInnes’ proposal overlooks a critical question: who actually does the supervising? AFSLs provide market-based monitoring—remove them, and only government remains. ASIC already struggles to monitor 2,000 AFSLs; expecting them to regulate 25,000 individuals means massive bureaucratic expansion. Advisers supporting this think they’ll save on licensee fees, but they’re actually advocating to swap market-based fees for astronomical government levies to fund the expanded supervision. ASIC would need armies of new staff, technology, and audit capabilities currently provided by AFSLs. Regional Australians would lose access entirely as these compliance costs make small practices unviable.
The AFSL model works. The overwhelming majority of AFSLs operate professionally—over 99% without major compliance breaches—managing risk far better than a decade ago. When one fails—like any business can fail—that’s not a model failure, it’s an enforcement issue. ASIC already has extensive powers to monitor fund flows, flag concentration risks, and intervene early. They knew about Dixon’s over-allocation to internal funds and did nothing. Blaming the model is the soft option that distracts from enforcement failures. Individual licensing is an academic fantasy that would replace a functioning system with chaos. The debate should end here: we don’t need new structures, we need ASIC to use the tools they already have.
It was framed as being coupled with self regulation not expanding bias bloated ineffective asic. You said yourself product failure occurred without the afsl too, has it been mitigated effectively? No. Should we stick with uniquely Australian ineffective costly slow and lowest common denominator psuedo compliance layer NO.
If you’re waiting for ASIC to regulate MIS instead of pin it on advisers and tax them for the penalties through the corruption of the csolr you’re dreaming and way out of touch or conflicted. Change the framework abolish afsl self regulate and stop fleecing blaming and taxing advisers to death. Doesn’t help clients doesn’t help retail advisers
Yep, agreed. All individual licensing would achieve is to remove a layer of oversight.
Dear Peter Swan,
I thank you for your rebuttal. Here is my response to your lengthy rebuttal defending the AFSL model and criticising individual licensing, especially in light of comparisons to doctors, lawyers, and accountants:
Why Individual Licensing Deserves Serious Consideration
1. Misunderstanding Risk and Responsibility
The claim that individual advisers lack the capital to compensate clients in cases like Shield or First Guardian is a red herring. No individual—nor any AFSL—can realistically cover billion-dollar losses without systemic safeguards. That’s why compensation schemes of last resort, statutory trust accounts, and professional indemnity insurance exist across other professions. Doctors don’t personally fund malpractice payouts; lawyers don’t personally cover client losses from firm collapses. Yet both are individually licensed and held accountable.
– Capital reserves and PI insurance are not exclusive to AFSLs. They can be mandated for individuals just as they are for law firms and accounting practices.
– The AFSL model didn’t prevent the collapse—it merely centralised the failure. Individual licensing would distribute risk and accountability, not eliminate it.
2. False Equivalence Between Scale and Complexity
The argument that financial advice is uniquely complex and therefore unsuitable for individual licensing ignores the reality of other professions in terms of complexity and risk and their associated licensing model as follows
a) Medicine – Life-and-death decisions, evolving science – Individual licensing with firm-level support and legislation
b) Law – High-stakes litigation, fiduciary duties – Individual licensing with firm-level support and legislation
c) Accounting – Financial audits, statutory compliance – Individual licensing with firm-level support and legislation
d) Financial Advice – Market predictions, retirement planning – AFSL-centric model (currently) with legislation
Advisers do not operate in a vacuum. Like doctors and lawyers, they can be individually licensed while working within firms that provide infrastructure.
The notion that financial advice is “betting on unknowable futures” is precisely why individual accountability matters—clients deserve to know who is making those bets.
3. The “Double Agent” Problem Is Real
The rebuttal dismisses my “double agent” critique without addressing its substance. AFSLs often have commercial interests that conflict with client outcomes—especially when licensees are vertically integrated with product issuers.
– Lawyers serve the court and client—but their fiduciary duty is clear and enforceable
– Doctors serve patients and public health—but clinical independence is protected
– Advisers under the supervision and hence CONTROL of AFSLs often face conflicted remuneration structures, product quotas, and internal compliance pressures that dilute their duty to clients.
Individual licensing would clarify professional responsibility, making it easier to enforce ethical standards and detect misconduct, particularly by peers who DO NOT WANT rogue advisers to flourish. Just like in other professions where attempts at weeding out the rogues is part of these professionals professional obligations tather than leaving it to a regulator like ASIC.
4. Oversight Isn’t Binary—It’s Modular
The idea that removing AFSLs would leave ASIC to supervise 25,000 ( it’s really only 13,000 currently) individuals misunderstands regulatory design. Professional Standards Councils (law and accounting) or Medical Boards (medicine) regulates individual lawyers, doctors, and accountants through professional bodies and delegated professional frameworks.
– Individual licensing doesn’t mean no oversight—it means direct accountability.
– Professional associations (e.g., FAAA, SMSFA, etc) could evolve into a regulatory body/ies, much like the Medical Board or Law Societies.
– Technology-enabled supervision (e.g., audit trails, data analytics) can scale oversight without bureaucratic bloat.
5. AFSLs Are Not a Panacea
The claim that “99% of AFSLs operate professionally” is statistically misleading. Many AFSLs are shell entities, self-licensed advisers, or small firms with minimal compliance infrastructure. The failures of Sequoia, Dixon, and others show that AFSLs can obscure individual accountability, not enhance it.
– Enforcement failures are not separate from model failures—they are symptoms of structural opacity.
– Individual licensing would force advisers to own their advice, not hide behind licensee compliance teams.
– individual licensing would force AFSLs to OWN their own compliance failures, like product failures, or rogue leaders and employees, and not hide behind advisers, Shield, First Guardian, Dixon, etc.
6. Regional Access and Cost Arguments Are Overstated and unproven
The idea that individual licensing would destroy regional advice access is speculative. In fact, sole practitioners in law and accounting thrive in regional Australia under individual licensing.
– Compliance costs can be scaled and subsidised through professional bodies, tech platforms, and government support.
– AFSL fees are already a barrier for many advisers—individual licensing could reduce entry barriers and foster innovation.
7. Reform, Not Abolition
My proposal doesn’t advocate for chaos—it advocates for clarity, accountability, and professionalisation. The AFSL model has strengths, but it also has blind spots that individual licensing could address. The real debate isn’t AFSL vs. individual licensing—it’s how to build a hybrid model that protects consumers, empowers professionals, and ensures systemic resilience. What I mean by a hybrid model is that AFSLs should be to advisers like the pharmaceutical companies are to doctors. Pharmaceutical companies do not supervise or regulate doctors’ medical compliance obligations, in the same way I advocate that AFSLs should not supervise and regulate advisers’ advice compliance obligations.
Individual licensing is the only acceptable solution for an adviser to protect themselves from all vested interests – licensees included
“The adviser has recommended a product that has failed but the adviser is not responsible for the product failure, it is the licensee.”
You can have every rule in the world to govern advisers and licensees, but it won’t stop product failure due to bad governance, fraud & criminality on the product side. A failure at product level is a failure at product level.
I am all for individual licencing, so long as the cost is managed and does not blow out to the levels of what we see with AFSL licencing.
Also the question then becomes, how is the compliance going to be managed? How do we as a profession know when bad advice is being provided. How do we call out the advisers failing in their duty.
There is a lot to be worked through before we as a profession can take this step
Cost blow out is due to the AFSL licensing model- why is it that doctors, lawyers, engineers, and other true professions do not have the huge costs that financial advisers seem to carry as part of their licensing regime? If advisers are licensed under a single self-regulatory body, the costs will be similar to other professions.
I was championing individual licensing in the 80’s but wasn’t able to generate much support.