On Thursday morning, the Australian Securities and Investments Commission (ASIC) announced it has commenced civil penalty proceedings against InterPrac and SQM for their involvement with the funds, and is seeking “orders to restrain Interprac from carrying on a financial services business”.
In its filing to the Federal Court, the regulator alleged that “thousands of Australians were exposed to poor financial advice and significant risks” from the Shield Master Fund and First Guardian Master Fund through “critical oversight and compliance failures” by Interprac.
“ASIC has commenced civil penalty proceedings in the Federal Court against Interprac for allegedly failing to ensure its former authorised representatives Venture Egg (a corporate partnership), and Rhys Reilly Pty Ltd (together, Representatives), complied with the best interests obligations and for failing to have adequate risk management systems,” ASIC said.
“Together, these Representatives advised around 6,843 clients to invest around $677 million of their superannuation into Shield and First Guardian. Both funds have now collapsed, leaving people’s superannuation at risk.”
Among the regulator’s allegations against Interprac are that the licensee failed to:
- have in place an adequate process for approving financial products it allowed onto its approved product list, including Shield and First Guardian, and relied entirely on external research to add those funds to its approved investments list for advisers;
- respond appropriately to the use of lead generators (being Imperial Capital Group Australia Pty Ltd and AGAT Business Pty Ltd (in liquidation));
- respond adequately to news that payments had been made to Ferras Merhi’s companies by entities associated with First Guardian and Shield;
- enforce or maintain a hold on new investments into Shield and First Guardian after Interprac’s managing director and responsible manager, Garry Crole, acknowledged serious issues with both funds;
- prevent the use of a ‘negative consent’ practice, which led to some clients’ superannuation being invested in Shield and/or First Guardian without express consent from those clients;
- respond adequately to significant inflows of investment into Shield and First Guardian;
- provide adequate responses to client complaints about advice from the Representatives to invest in Shield or First Guardian and instead relied on a ‘template’ response which often failed to consider the appropriateness of the advice; and
- respond adequately or impose meaningful consequences in response to serious compliance issues, including failings repeatedly identified in audits.
“Interprac’s alleged oversight and compliance failures exposed thousands of Australians to poor advice and significant financial risk,” said ASIC deputy chair Sarah Court.
“We allege Interprac failed to ensure certain authorised representatives acted in their clients’ best interests, contributing to hundreds of millions of dollars of superannuation being invested in products that were unsuitable, high risk and costly.
“We allege that no competent financial adviser could have recommended Australians invest large amounts of their superannuation in these funds, and that Interprac – as licensee – should have been alert and responsive to the significant risk this conduct posed to clients, but it failed on many levels.”
In a statement to ifa, an InterPrac spokesperson said: “InterPrac confirms it has received notification from ASIC. InterPrac is unable to provide further information at this time and will defend its position on such allegations vigorously.”
SQM reports ‘misleading’
In its claim against SQM Research, ASIC alleged that the research house prepared reports containing “misleading representations and its processes fell short of expected standards” when it published “Favourable” ratings for Shield.
SQM rated the different classes of Shield as “3¾ stars, Favourable” in reports it published in October 2021, March 2022 and October 2022.
The corporate regulator has alleged that SQM Research:
- failed to obtain the information it needed to properly assess Shield;
- failed to properly consider inconsistencies in information it received when preparing its reports about Shield;
- misrepresented that it had a reasonable basis for giving Shield a “Favourable” rating and had exercised reasonable care and skill in doing so; and
- made misrepresentations that understated the percentage of funds managed by parties related to Shield and the asset allocation of Shield.
ASIC also alleged that the SQM Research reports “did not accurately depict the standard, quality, value or grade of Shield, and that reflected deficiencies in the processes SQM followed”.
Court noted that the proceedings against SQM Research marked the first time the regulator had taken action against a research house.
“Research houses have a responsibility to ensure they obtain the information needed to prepare their reports, take real care and skill in assessing that information and to present that information accurately,” she said.
“We believe research houses are important gatekeepers and form part of a critical line of defence against poor quality investments or unsuitable products.
“Given the important role research houses play in rating funds and investments, the community is entitled to expect that their reports will be accurate and based on appropriate information and analysis.”
ASIC is seeking declarations and civil penalties from the Court in relation to both InterPrac and SQM Research, and orders to restrain Interprac from carrying on a financial services business.
There is a solution to all this. Independence. No Licensees. No ownership by or relationship with product providers or platforms. Research and build your own Approved List. Focus on being a good professional adviser for your clients rather than inadvertently making money for all the Adviser hangers on (Licensees, product providers, Platforms, Research houses, asset consultants) many of whom get in the way of advice professionalism.
No Storm
No Dixon’s
No Royal Commissions
No Shield and First Guardian
Then, maybe, no CSLR
Of the 15,000 advisers in Australia atm, not even half would be capable of being independent like this which is the problem. Industry super advisers alone don’t even know how to use wealth solver or risk researcher tools (or their equivalents) to conduct like for like comparisons. Can you imagine an Australian super or Aware super adviser doing actual research and recommending their members move out to someone like Uni Super because its cheaper and better performance lol no chance.
Well said
And that’s this issue for small operators lack of governance oversight
Governance oversight for big practices doesn’t seem to be working too well. Storm. Dixons. Sequoia/Interprac.
Just remind me, which small practices, self licensed and independent have been a problem?
MWL? UGC?
Half of the current advisers being independent would be a fantastic start. They would then be in a different regulatory category to Any advisers employed by Super Funds, as Industry Super fund advisers are clearly not independent. As long as the public is made aware of which is which, it could work well.
Independent ownership and management of your clients (not the firm you work for) would fix a lot of problems up in this industry. Look at how a doctors practice operates and is licensed. We could learn from that.
Exactly.
Independence isn’t the issue here — SQM Research is. They gave both Shield and First Guardian “Favourable” ratings with no governance concerns, and that stamp is what put them on platforms. If SQM hadn’t been negligent, the problem never would’ve existed in the first place.
Exactly!
Platforms usually require 4.0 stars, not 3.75.
Any penalties or fines ASIC recover don’t even flow to the CSLR pool. How is it fair that ASIC accuse all these parties of failures and yet advisers are the ones who have to compensate affected clients through the CSLR levy? The system is broken.
The best and fairest outcome in this case (due to ASICs failings) would be to compensate the 12,000 affected investors now, and then recover any monies they can later to pay it back. Don’t drag these poor Australians through years of costly liquidations that eat away at the recoverable amounts anyway.
One would hope comprehensive third party due diligence would have been completed before letting a fund into an APL
In my world this would and should include:
1. Fund Manager Due Diligence (Firms, People, and Governance)
Corporate Governance Review
• Ownership structure and financial stability of the asset manager
• Capital adequacy / balance sheet strength
• Regulatory standing (permissions, enforcement history, breaches, capital adequacy )
• Corporate governance framework: board independence, oversight committees
• Conflicts of interest policy
Key Personnel
• Track record, tenure, and experience of portfolio managers
• Key man risk assessment (backup managers, team depth)
• Staff turnover rates in the investment team
Operational & Compliance Controls
• Internal audit & risk frameworks
• Compliance monitoring processes
• Best execution procedures
• Market abuse controls
• Fraud prevention and cybersecurity controls
⸻
2. Investment Due Diligence (Fund Structure, Strategy, Performance)
Fund Strategy & Philosophy
• Clear investment objective and mandate
• Asset allocation methodology
• Style consistency (value/growth/quality/absolute return etc.)
• Use of derivatives / leverage
• Liquidity of underlying assets
Performance Analysis
• Long-term performance versus benchmark & peers
• Risk-adjusted metrics (Sharpe, Sortino, information ratio)
• Performance attribution
• Consistency of returns
Risk Management
• Portfolio construction controls
• Stress testing
• Concentration risks
• Counterparty risks
Documentation Review
• Prospectus, KIID/KID, T&Cs, factsheets
• Fund governance structure (AFM, depositary, oversight committees)
⸻
3.Operational Due Diligence (ODD)
Often carried out by a third-party governance provider such as Morningstar etc.
Includes:
• Trade execution process
• Valuation methodology (especially for illiquid assets)
• Custody arrangements
• Record-keeping & systems
• Disaster recovery & BCP plans
• SLA reviews with third-party providers
• Transfer agency & administrator checks
Many advice groups rely heavily on independent ODD reports for this stage.
⸻
4. Regulatory Due Diligence
Businesses must prove the product is suitable for the target market.
Target Market Assessment
• Who the fund is designed for
• Client segments where the fund may cause harm
• Whether the complexity is aligned to the advice firm’s client base
Price & Value Assessment
• Ongoing charges (OCF) vs peers
• Performance net of fees
• Transaction costs
• Transparency and disclosure quality
Consumer Understanding
• Clarity of communications
• Accuracy of marketing materials
5. Commercial & Practical Due Diligence
essential for advice group governance.
Platform Availability
• Availability on all major platforms
• Cost differentials or platform pricing anomalies
Scalability
• Ability to handle inflows/outflows
• Fund capacity limits
Share Class Selection
• Clean share class availability
• Institutional vs retail share classes
• Any exit fees or dilution levies
Conflict of Interest Assessment
• Links between advice group and the fund
• Inducements (must be avoided)
• No commission or soft-dollar benefits
⸻
6. Final Sign-Off and Governance Cycle
Most advice groups follow a formal governance path:
Approval Stages
1. Initial Due Diligence Pack Completed
2. Investment Committee Review
3. Risk & Compliance Review
4. Executive / Product Governance Forum Sign-off
5. Addition to APL + communication to advisers
Ongoing Monitoring
• Annual formal review (minimum)
• Quarterly performance monitoring
• Monthly alerts for performance triggers or manager changes
• Immediate review if:
• Fund manager is replaced
• Performance hits agreed triggers
• Corporate governance events occur
• Liquidity issues arise
Documentation
• Full audit trail
• Rationale for inclusion
• Evidence of independent judgement
Everything you’ve listed sits squarely with licensees, super trustees, and research houses — not individual advisers. And that’s where the real failure occurred. SQM Research rated both Shield and First Guardian “Favourable” with no governance concerns, despite skipping huge parts of the due-diligence process you’ve outlined.
On top of that, Macquarie and Equity Trustees — both APRA-regulated super trustees — had their own statutory and prudential obligations before putting any fund on an APL: governance checks, liquidity oversight, related-party risk assessment, and verifying the accuracy of asset-allocation information.
If SQM, Macquarie, and Equity Trustees had followed the process you’ve described, Shield never would’ve been added to an APL and advisers couldn’t have recommended it at all.
Yet your comment doesn’t ask for a shred of accountability from any of them. Why is that?
The Statement of Claim against SQM Research is eye-opening. Shield’s asset allocations were blowing out of the PDS ranges very early on, yet SQM’s reports continued to state that direct property exposure was around 20% when it was actually 60–75%. That’s not a minor oversight — that’s a fundamental failure from an “expert” research house whose core job is to verify what it is rating.
What’s wild is how often SQM pops up in these ifa comment threads trying to blame advisers. The reality is simple: SQM gave Shield a positive, Favourable rating before anyone was even allowed to recommend it. Macquarie, as the platform trustee, was also supposed to be providing tight oversight over both the product and the research house it relied on.
Yet advisers are the only ones exposed, while research houses and trustees don’t contribute a cent to the CSLR safety net. And AFCA’s system pushes clients to make complaints about their adviser even when the root cause is product failure, poor trustee oversight, and misleading or incomplete research.
AFCA’s rules need an overhaul, and the CSLR funding base needs to be broadened. If we’re serious about consumer protection, accountability has to include all the gatekeepers — not just the most convenient target.
Where has SQM blamed advisers?? What rubbish. There is nothing eye opening about the findings. None of this was the cause of the fund’s demise. Rather, it was the fraud that brought the fund down
SQM can spin it however they like, but the facts are simple: they were told the fund had 60–75% in a related-party property vehicle and still published reports telling advisers it was 20% and “largely static.”
That’s not a minor slip — that’s a massive, misleading misrepresentation from a research house whose entire job is to verify the numbers. Advisers only saw SQM’s polished 20% figure. SQM had the real data and waved it through with a Favourable rating and “no governance concerns.”
So no — the problem isn’t advisers. It’s a gatekeeper that failed spectacularly at the one thing it was supposed to get right.
Some welcome, if uncharacteristic, accuracy and restraint from ASIC in describing the damage as “leaving people’s superannuation at risk” rather than “losing all their super!!”.
Contrary to the deliberate exaggeration and misinformation elsewhere, the affected consumers will not “lose all their super”. They will get some, if not all, of it back through liquidation of the funds’ remaining assets, remediation by involved parties (such as that already provided by Macquarie), AFCA determinations, and CSLR.
When does ASIC cop scrutiny for their poor performance? All they had to do was to act when it was first tipped off to them and it would have been blatant to see what was going on. They did nothing, just like Dixons, and only come to the party when everything blows up. They are a regulator, they should regulate!
Great Point
– ASIC were tipped off about these investments in 2021 and 2022. Did nothing to prevent investor harm until 2023 and 2024.
– ASIC already have powers under S601FF to conduct surveillance/monitor managed investment schemes. Used zero times in 2023-2025 which could have saved thousands of investors.
– ASIC emailed interprac in June/July 2023 about VE concerns. Investment still flowed for another year or so.
The list goes on. ASIC need to be investigated.
Prevention is the best, not reactive. This will happen again and again. They should regulate and actually aim to protect consumers. But it seems they would rather wait until harm and loss has occurred so its easier to blame someone (the advisers).
The advisers who recommended Shield and First Guardian and obscenely profited from these recommendations absolutely failed in their role here.
If the advisers hadn’t been paid secret commissions by Shield and First Guardian no client would ever have been advised to invest in these funds.
No client came to the advisers saying I have read the SQM report and I want to invest in Shield and First Guardian. No platform advised clients to invest in Shield and First Guardian. The advisers recommended this boondoggle because the adviser was getting rich from doing so.
And just to add insult to injury, it appears that client’s money was moved to these financial sinkholes without even getting their actual approval!
Stop trying to hide. Take responsibility. Its the advisers fault, pure and simple. there is zero legitimate reason to advise clients to take all their money out of a HESTA or REST or whatever, and then invest 100% of their Super into these funds, and never was.
There are advisers at the top (Directors, Chief Investment Officers, responsible managers – who may not have even been advisers at all) who picked these investments knowingly because of the kick backs on the back end, hidden from SOAs, PDSs and disclosure to clients and directed their salaried advisers to adopt these. They are definitely guilty and deserve what’s coming to them.
Advisers generally come into a business, and have no say on the way that business operates or has any input into the model portfolios or investments selected. Look at the banned MWL advisers, only 1 so far has been on the investment committee it seems. And even then, he may not have been aware of the hidden kick backs if the director Nicholas Maikousis had made these deals secretly; who’s apparently fled the country to Greece! Why wasn’t his passports seized by ASIC then? Another failing?
I feel bad for the innocent advisers who were following their firms directions and thought they were doing the right thing yet will get banned anyway while the actual crooks who caused all this harm have already banked their millions and taken off.
It is inappropriate to assume that advisers were receiving undisclosed commissions. If such evidence exists, it should be produced. The only individuals known to have received conflicted remuneration were the directors of the relevant companies, and it has been alleged that they did not disclose this to anyone else.
While making allegations is understandable, relying on unfounded assumptions is highly problematic. Many people are mistakenly grouping advisers—who believed they were acting in clients’ best interests—with the directors and legal representatives of these companies, whose roles and responsibilities were entirely different.
It may also be beneficial for more advisers to publicly share their account of events to provide clarity and balance to the discussion.
Additionally, there appears to be considerable confusion regarding whether individuals dealt with a licensed adviser or a sales representative from a referral company. These roles differ significantly, and recognising that distinction is essential. It would be highly inappropriate—and highly unlikely—for an adviser to use terms such as “promise” or “guaranteed,” whereas such language could be expected from a sales representative who faces no professional or legal consequences for making misleading statements.
The blame sits mainly with the product manufacturers first Shield and Guardian. It relied on guarantees and returns that weren’t realistic given market conditions. The maths didn’t work. The promises couldn’t be delivered long-term. It was always going to collapse under pressure. I don’t no how the products were approved in the first place. There should have been strong governance by trustee’s.
I wonder who’s responsible for educating the public for years to compare the pair and average out how much better off someone would have been if they went with one fund type over another? Any guesses?
Projections should be based on risk profile long term average returns, not selective past performance periods. Eg High Growth profiles with 95% growth assets/5% defensive average return should be approximately 7-8% pa max.
You’re right that the product manufacturers bear responsibility — but the missing piece here is how these products were ever approved in the first place. That trail leads straight to SQM Research.
SQM was the one that took Shield and First Guardian, looked at the numbers, and still issued Favourable ratings with “no governance concerns.” They did this while being told the fund had 60–75% in a related-party property vehicle but reporting to advisers that it was 20%. That rating is what allowed Macquarie and other trustees to place the product on their APLs.
So yes, the fund design was flawed.
But SQM’s sign-off is what legitimised it.
And without that stamp of approval, the trustees wouldn’t have approved it and advisers wouldn’t have been able to use it at all.
SQM Research absolutely failed in their role here. A 3.75-star rating isn’t “low” — SQM literally classifies 4 stars as high investment grade. Their own reports said “Favourable” with “no corporate governance concerns.”
And here’s the bit people forget:
You cannot get onto an APRA-regulated super platform or an AFSL’s approved product list without a research house rating. It’s a mandatory gateway. Advisers rely on that safeguard because that’s how the system is designed.
If SQM Research hadn’t legitimised Shield with that rating, the fund would never have been approved, never would’ve appeared on Macquarie, and never would’ve attracted a dollar of client money. Both SQM and Macquarie stamped it with legitimacy — without those two players, there is no Shield Master Fund.
This wasn’t advisers freelancing outside the system.
The system itself green-lit it.
The other part of the SQM definition of a 3.75 rating is “consider for APL inclusion”. Seems to be ignored in all this schmozzle.
Consider.
Now why did some advisers and dealers ‘consider’ putting clients into it!
If we’re talking about the word consider — then let’s apply it evenly.
Why did Macquarie and Equity Trustees consider the fund suitable enough to add to their APRA-regulated investment menus in the first place?
Those are institutions with compliance teams, investment committees, and fiduciary obligations under SPS 530 to ensure diversification and due diligence.
Advisers relied on that green light because that’s literally how the system is built — research rating → trustee due diligence → platform inclusion.
It’s a bit rich to single out advisers for “considering” it when the very entities designed to protect investors were the ones who approved it.
Agreed. 3.75 is known not to be a high rating. It’s their 2nd lowest investment grade rating out of 7 knotches. Yet going from some of the crooked posts here, you would think they issued their highest rating.
It’s amusing you say 3.75 “isn’t high,” but skip the part where 3.75 is still investment grade — literally one notch below SQM’s high investment-grade category. That’s why advisers, and more importantly Macquarie and Equity Trustees as APRA-regulated super trustees, treated it as sufficient for APL inclusion.
SQM labelled Shield “Favourable” with no governance concerns while holding data showing 60–75% in a related-party property vehicle, yet reporting it publicly as 20%. Advisers didn’t misread anything — SQM misrepresented the fundamentals.
But sure — I’m sure SQM will “respond in due course.” They’re probably still workshopping how to explain a “Favourable” rating on a fund that was three times more concentrated than they reported.
Not heard of an adviser or platform that would accept a 3.75 rating for inclusion on anything, also knowing the the CDPF rated 3.5.
Anecdotally, a 4.0 minimum would be required.
Must be some other motivation?
It’s astonishing how often we see the same pattern repeat in this industry — large licensees, product issuers, and research houses all play a role in enabling questionable products to flow through the system. Yet only a handful of individual advisers end up being banned or blamed (mixture of guilty bad apples and innocent junior advisers at the bottom of the chain).
In this case, InterPrac, SQM, and others in the distribution chain appear to have failed at multiple levels: inadequate product due diligence, poor oversight of representatives, reliance on flawed external research, and ignoring red flags about conflicts and client consent. These aren’t isolated lapses, they’re systemic governance failures that left thousands of Australians exposed.
But heres how it’ll play out: Interprac will go into liquadation. Sequoia will write the business off, start a new license and transfer existing advisers/clients to this new branch. Dixon playbook rinse and repeat.
ASIC’s action is a welcome start, but unless accountability extends beyond just the front-line advisers to include the licensees, gatekeepers, and research houses that profit from these structures, the same thing will happen again under a different name. The culture of “passing the buck” has to end.
And who is holding ASIC accountable for licensing Shield and First Guardian, approving their PDS and failing in their supervisory role? How long were they away of the failures, or risk of failure before acting? Why does ASIC get off without any fault or liability? Why aren’t they paying out of their overfunded coffers?