‘Very dark clouds’: Pain on the way from Shield and First Guardian

With a potential exposure of $440 million through a single advice firm, the fallout from the Shield Master Trust and First Guardian Master Fund could have a devastating impact on financial advisers.

Appearing on a webinar with law firm Holley Nethercote, Financial Advice Association Australia (FAAA) general manager for policy, advocacy and standards, Phil Anderson said possibility of further damage to the advice profession could drag out for years.

“We have multiple black swan events happening, you only have to read the news about Shield Master Fund and First Guardian to know there are some very dark clouds out there. We are talking hundreds of millions of dollars at risk with those two entities,” Anderson said.

“And that’s not the limit, we saw two businesses last week where the licence was cancelled because of unpaid AFCA determinations which led to payments by the [Compensation Scheme of Last Resort], so the clouds are disturbing.

“The problem is it takes a long time for these matters to work their way through, so we will be listening to and hearing stories about these firms for some time to come. I’m already hearing stories about clients who got advice who are 90–100 per cent invested in Shield or First Guardian, the losses will be substantial and the damage is disturbing.”

In February, the Federal Court made interim orders freezing certain assets of Ferras Merhi in connection with its investigations concerning certain managed investment schemes, including Shield Master Trust and First Guardian Master Fund.

Merhi controls Venture Egg, and both he and Venture Egg are authorised representatives of Interprac Financial Planning. He also controls Financial Services Group Australia, which holds an Australian Financial Services Licence (AFSL).

The next hearing related to Merhi is currently scheduled for 26 May 2025.

According to comments Merhi has made previously, Venture Egg has about 5,000 clients with $250 million in Shield and 3,600 clients with $192 million invested in First Guardian, putting the total exposure for clients in excess of $440 million.

Meanwhile, the two instances of AFSL cancellations stemming from CSLR payments that Anderson referred to are indicative of the danger to advice – and the other subsectors covered – from firms eschewing responsibility for compensating their own clients.

However, these specific examples should be less concerning for advisers, with the bill from Brite Advisors totalling just $20,000 and the $450,000 tab to compensate Viridian Equity Group clients, ifa understands, being picked up by the securities dealing subsector.

Anderson noted that he is still optimistic about changes and fixes being made to the CSLR that would insulate advisers from covering the full cost of these kinds of collapses.

“I don’t know that it will be 100 per cent fixed, but the government understands this is unsustainable, and the more they read about Shield and First Guardian, the more they will understand that,” he said.

“Now, what we managed to achieve last year was the Senate inquiry. But the Senate inquiry hasn’t really done anything yet. It received submissions, and some very good submissions, I have to say, but they never had any hearings.

“Because the new Parliament is in place, we’re now reliant upon the government or the houses to agree to new, to a new inquiry, whether that’s from the Senate or from the PJC. So, that’s the first thing that we want to see, is a new inquiry established to thoroughly investigate exactly what happened [with Dixon Advisory].”

Not interrupted by the election, however, is the Treasury review of the CSLR, which now-former minister Stephen Jones kicked off on the same day that the CSLR released the 2025–26 levy figures.

“We will see that come to fruition. In our response to that, we put in only 35 recommendations. I think if some of those 35 recommendations are in place, then it’ll become more manageable,” Anderson said.

“But I, when this was initially framed, the thinking was it might cost about $6 million a year. It’s a huge ask to get back to that, but we want the government to give us confidence in the short term that they’re going to fix this.

“It is so important, because why would a new adviser want to join this profession? To be told, ‘Please join here. Here’s your contingent liability list. It’s $20,000’, which it could easily be.”