Misleading headlines only serve to distort public understanding

On Wednesday afternoon, The Australian Financial Review published the provocatively titled ‘Victims of collapsed First Guardian, Shield may lose $700m’, claiming that compensation “could top out at $300 million” according allegedly to a “warning” from the Compensation Scheme of Last Resort (CSLR).

The main problem here is that CSLR chief executive David Berry, who spoke with the AFR for the piece, never said this.

What he is quoted as relaying is that the Dixon Advisory compensation “will likely get to $200 million being returned and possibly closer to $250 million to $300 million when it is all is [sic] said and done”, and that Shield and First Guardian appear to be “in a similar ballpark”.

Berry did not provide a number to the AFR for the combined compensation for clients, but a vague allusion that could have been parsed in half a dozen different ways ($300 million per failed fund, for instance), appears to have been enough to incite the masthead to sensationalism.

He also simply doesn’t have a figure to give because, as Berry told ifa, the CSLR has yet to see a single AFCA determination related to these collapses.

At the same time, the largest target for compensation that could potentially land with the CSLR is InterPrac – as it authorised Ferras Merhi and advice firm Venture Egg – but the licensee is still operating.

As of right now, the AFSL is still liable for any of its authorised representatives’ misconduct, not the CSLR.

It’s far from the only error within the article, which simply reinforces the utter lack of understanding that many in the mainstream media have when it comes to financial advice.

The first seems innocuous enough, but with the amount of coverage these cases have received, calling it the Shield Master Trust was the first warning sign.

What followed is a clear demonstration that little effort was made to understand the CSLR, with the article explaining:

• The scheme is funded by advisers – there are four sub-sectors that fund the CSLR, but I’m sure the securities dealers facing a $4.7 million bill will be glad to hear they don’t have to pay anymore.
• Financial advisers contributed around $24.1 million to the program in the year to June – that’s the figure for the entire scheme, advisers paid $18.5 million.
• Financial advisers are set to contribute $75.7 million in the current financial year – again, that’s the number for all sub-sectors combined, advisers account for $67.3 million.

At least the exclusion of managed investment schemes from the CSLR was accurate, though stating there will “likely be claims against trustees, advisers or others linked to First Guardian and Shield” is misleading at best.

Super fund trustees are not included in any of the four sub-sectors, however those involved in these failures are members of AFCA and can be targeted for claims – any determinations in favour of the clients just won’t flow through to the CSLR if the trustee goes under.

That specific detail is where the article’s opening claim gets even murkier – Berry can only possibly speak to the impact on the CSLR itself, not anything clients could clawback from trustees.

There’s no telling how AFCA will rule in any hypothetical future complaint against Macquarie, Equity Trustees, Diversa, or Netwealth – the four trustees to have listed First Guardian or Shield on their platform.

And that’s exactly the point.

The amount covered through the CSLR could indeed wind up being less than half of the amounts owed, but there is simply no way to know and any attempt at speculation before the actuaries at Finity dig in (they’re gearing up to work on the FY27 estimate within weeks) is a fool’s errand.

Victims are hurting desperately and there is uncertainty everywhere.

Financial advisers understand better than most just how important superannuation savings are to Australians approaching retirement.

A super balance is a figure that represents more than just money – for many it is a numerical symbol of reassurance that their decades of work has set them up for a dignified final chapter.

Unfortunately for anyone caught up in the Shield and First Guardian collapses, that safety net has vanished, leaving them feeling increasingly vulnerable as uncertainty mounts and the extent of the failures sinks in.

It got even worse for investors in First Guardian this week, with Equity Trustees publishing a significant event notice on Monday to explain why holdings in the fund were being reset to zero following a damaging liquidators’ report.

“Given the findings in the Liquidators’ Report, it is no longer appropriate to value your investment in the FGMF using the last unit price determined by Falcon Capital, as we have been doing since the Liquidators were appointed,” the trustee told members.

“Due to the uncertainty about the valuation of the FGMF as set out in the Liquidators’ report and until further information becomes available, we intend to record the value of your investment in the FGMF in your account as zero. However, if distributions are made in the future, these will still be credited to your account.”

Adding that it could be at least 18 months before any distributions would be made, the news would have been a heavy blow.

For a client that has just seen their super balance marked essentially worthless, being hit with a headline claiming investors in these funds could lose $700 million – without any tangible basis – will invariably cause even greater anguish.

Sloppy reporting and unfounded headlines slapped across a national masthead do little to help the situation for thousands of Australians already struggling to understand whether they will get any of their super back.