The Australian Financial Complaints Authority’s (AFCA) lead decision relating to MWL Financial Services has shed light on the practical impact of clients that have been reimbursed for their Shield Master Fund holdings.
In a video, AFCA lead ombudsman for investments and advice Shail Singh said the lead case saw a couple cold and “encouraged” to get their super reviewed.
“They were then referred to an advisor who recommended they set up a self managed super fund, roll all their existing superannuation into it and invest most of it into the Shield Master Fund,” Singh said.
According to the ombudsman, this is a familiar pattern for the impacted investors that have lodged complaints against MWL.
“In the lead case, the complainants felt the advice wasn’t right for them. It was too risky, wasn’t diversified and didn’t reflect their goals,” Singh added.
“One complainant also received insurance advice that wasn’t completed properly, which meant they lost trauma insurance in responding to the complaint.
“MWL did not dispute the inappropriateness of the recommendation to enter the Shield Master Fund, but said the loss couldn’t be calculated because Shield was frozen, and argued the insurance wasn’t their responsibility.
“The firm’s licence has since been cancelled and it is now in administration.”
He explained that the AFCA panel found the adviser did not act in their clients’ best interests.
“They found that the adviser didn’t address their needs, provided misleading information about Shield and their existing super, moved them into a much riskier strategy without justification and didn’t check if they were suitable to run an SMSF,” Singh said.
“The firm was also found to have been 50 per cent responsible for the complainant losing the trauma insurance. The complainants in this case are entitled to almost $96,000 in compensation for the inappropriate advice, 50 per cent of the lost trauma insurance benefit, plus up to $5,000 for winding up the SMSF.”
Implications of Macquarie compensation
In September last year, the Australian Securities and Investments Commission (ASIC) and Macquarie Investment Management Limited (MIML) announced that the super fund trustee had committed to paying $321 million to cover the losses of thousands of Australians that invested in Shield through its platform.
Under the terms of a court-enforceable undertaking from Macquarie, the firm has compensated its members for 100 per cent of the amounts they invested in Shield less any amounts withdrawn.
“This is an important outcome that stems the significant losses that threatened thousands of members’ retirement savings after they used Macquarie’s platform to invest their super in Shield,” ASIC deputy chair Sarah Court said at the time.
As superannuation trustee, MIML oversaw approximately $321 million in super investments into Shield by around 3,000 of its members between 2022 and 2023.
While Singh did not address the impact of the Macquarie compensation on the AFCA determination, the published decision shows that the $95,902.95 awarded to the complainant was almost entirely thanks to a “but for” calculation.
“At law if inappropriate advice has been provided direct loss is measured by placing the complainants in the position they would be in had they received appropriate advice,” the determination said.
“Therefore, loss is calculated by comparing the financial outcome of the inappropriate advice with the financial outcome of appropriate advice had the financial firm provided it. This is by necessity an estimation, and such an approach is endorsed by the Courts. Ultimately AFCA is required to determine what is fair in the circumstances.
“In this instance, the advice that Mr C and Ms G exit their existing superannuation funds was inappropriate, as these funds suitably met their needs. The financial firm misled the complainants to believe these investments were not performing when in fact they were.”
In calculating the loss, AFCA compared the complainants’ previous superannuation funds and their associated costs with the costs of investing in Shield via the SMSF and Macquarie platform.
“This shows the SMSF has incurred a total loss of $95,902.95. This is a direct loss associated with the financial firm’s advice to exit the complainants’ APRA regulated funds and invest in the recommended strategy,” it said,
“The ‘actual’ scenario includes the 100 per cent net return on capital Macquarie has paid to the complainants ($222,000), reducing the loss they have incurred. In making this payment Macquarie purchased the complainants’ units in Shield. This means they will receive no further return from the wind up of Shield.”
Essentially, despite Macquarie paying the complainants $222,000 to cover the initial investment, the advice firm remains on the hook for the “but for” scenario.
However, as MWL has now entered liquidation, the cost of this and any other decisions will likely be picked up through the Compensation Scheme of Last Resort.
You know what is freaking inappropriate?
Innocent Advisers that have money stolen from them by the Governments CSLR to underwrite investment losses for MIS fraud & failures that the same Government has let flourish.
The whole CSLR is an utter THEFT mechanism to protect incompetent politicians and bureaucrats.
Why don’t Politicians and Bureaucrats pay compensation when they make the mistakes ?
If there are any financial advisers who remember before year 2000, there were Public Trust Companies that held the assets and cash of retail investors and monitored the investment mandate of fund managers, ie, clients make your cheque payable to “Permanent Trustee Company Ltd – [investment fund name], before the Tresaury introducted Law Reform change to ‘Responsible Entity’. There were no fiduciary frauds, with Pulbic Trust Companies. Then the law was changed from external and indepedent fiduciary control with Public Trust Companies to ‘Responsibility Entity’ for the industry weakness with internal and conflict of interest by those university qualified managers of who handle client funds that caused the fiduciary failure of $1 billion in Shield and First Guardian. If the Government changed the law to allow ‘Responsibility Entity’ industry weakness, who should be paying compensation? External Independent Public Trust Companies and financial advisers who never handle client funds. ASK MACQUARIE and NETWEALTH, did Shield and First Guardian managers tell Macquarie and Netwealth that they were going to fiduciary fraud before the event as critical ‘due diligence’? Does a bank robber tell the bank head office before they rob a branch?