AIOFP looking for answers following regulator’s latest MIS action

The Australian Securities and Investments Commission’s (ASIC) latest action against an managed investment scheme (MIS) provider, according to Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston, raises the question of who is responsible for their conduct.

On Monday, ASIC announced that it had launched Federal Court proceedings to appoint receivers to Australian Fiduciaries Ltd and numerous related entities.

Australian Fiduciaries is the trustee of the Global Diversified Alpha Fund, the Global Multi-Strategy Fund and the Global All Seasons Fund, and ASIC has previously taken action against the firm through interim stop orders in December 2022.

Following the interim stop orders, Australian Fiduciaries proposed new target market determinations that addressed ASIC's concerns, and the regulator subsequently revoked the interim orders later that month.

Around 600 Australian retail investors have invested approximately $160 million into the schemes, according to the regulator, predominantly through their self-managed super funds (SMSFs).

Following this news, Johnston said that the AIOFP would be “writing immediately” to Mulino and Longo about this and related “critical issues” that impact both advisers and consumers.

“The announcement today by ASIC of the possible product failure losses within the Australian Fiduciaries Ltd group and the recent comments that ASIC are investigating the widespread failure of compliance duties within custodians/trustees/auditors/administrators/MIS structures begs the question – who is responsible for their conduct?” he said.

“We can only assume that this duty is the responsibility of ASIC the supreme regulator.”

As he noted, earlier this month ASIC detailed what it said were failures within compliance plans among MIS responsible entities.

The regulator assessed 50 compliance plans used by REs in the operation of a combined 1,471 funds – with managed investments totalling almost $1 trillion – and found a range of issues, including some failing to even address DDO at all.

This suggests, ASIC commissioner Alan Kirkland said, that “they haven’t been meaningfully reviewed since 2021”.

At the time, Johnston said the ASIC statement “exonerates financial advisers” from blame for product failures.

“This statement by ASIC, however, effectively shifts the blame to the responsible entities/product manufacturers for product failure over the past 30 years and did not mention the term ‘financial adviser’ once – a very fair and welcomed outcome,” he said.

‘All care, no responsibility’

While Johnston had praised ASIC’s earlier statement, he argued the amount of MIS issues signified that the regulator is taking an “all care and no responsibility attitude” towards regulation.

“If ASIC takes no responsibility for product content/release and no responsibility for product conduct, what exactly do they do in this space to protect consumers?” he said.

“Unless the intended structure of the CSLR is amended to reflect what the Ramsay Report/Comm Hayne originally recommended and both sides of politics agreed to, it will ultimately destroy the advice profession. The CSLR rules must be returned to the pre-FSC influenced structural ‘adjustments’.”

According to Johnston, the AIOFP’s recommendation to Minister Mulino will be that the CSLR include MISs and every MIS must pay a fraction of their management fee into an account managed by the CSLR to fund future product failures.

“Direct share trading incurs a levy for participation, the same should be applied to the funds management industry,” he said.

“Vertical Integration must be banned to protect consumers and assist ASIC with regulating the market. Grandfather it for current providers but they must be subjected to a thorough independent annual assessment to monitor their activities. You are either a product manufacturer or a financial adviser, it is a breach of the best interests duty to be both.”