All ‘guilty advisers’ in Shield and First Guardian need life bans: AIOFP

As the Shield and First Guardian failures look set to dwarf the scale of the $180 million Trio Capital collapse from 2009, the Association of Independently Owned Financial Professionals (AIOFP) has raised concerns the ultimate punishment for those involved will be similarly light.

According to AIOFP executive director Peter Johnston in a letter to MPs, the Trio Capital case and the still unfolding Shield and First Guardian failures have “exposed flaws in our regulatory regime that demands urgent legislative attention”.

Only one person saw jail time for the Trio Capital fraud, with Shawn Richards serving a two-and-a-half-year sentence despite being handed a maximum of three years and nine months for stealing $26.6 million.

“No wonder Shawn Richard behaved well in jail, he decided to endure the heat of the investigation/incarceration then disappear offshore with $26.6 million to fund his lifestyle,” Johnston said.

“It appears the perpetrators of the Shield and First Guardian frauds have chosen a similar path, put up with short term heat then enjoy their ill-gotten gains over the medium to long term by sending the cash offshore.”

The AIOFP head added that the law needs to be changed to “retain these fraudsters in jail until the offshore cash has been recovered, similar to the pressure put onto murderers who will not disclose the location of their victims”.

Turning to any of the financial advisers involved in funnelling clients into the fund, Johnston said: “All of the guilty advisers involved should be banned for life or incarcerated depending on their level of involvement.

“It is so unfair that less than 1 per cent of the advice profession can taint the reputation of all other professional advisers.

“The lesson from the 2011 Senate inquiry into the Trio fraud was the poor performance of the trustees, auditors, research houses, fund managers, ASIC/APRA and the same failings apply to the Shield/First Guardian fiasco some 14 years later. We are pleased that Macquarie Bank have agreed to pay $320 million for their incompetence, we expect the other stakeholders will also contribute.

“The days of unfairly blaming financial advisers for product failure are behind us.”

Last month, Johnston called for a royal commission into ASIC and the managed investment scheme process, arguing that the long-standing focus on financial advisers as scapegoats has allowed other stakeholders – including ASIC, APRA, trustees, custodians, auditors, research houses and institutions – to evade responsibility.

“For the last 30 years MIS has protected ASIC from litigation with their ongoing flawed conduct but it has thrown taxpayers ‘under the bus’ with consumer protection,” Johnston said.

“ASIC/APRA, trustees, custodians, auditors, research houses and institutions have evaded accountability with their role when financial products fail, they have cleverly, unfairly and most times collectively spun the blame onto financial advisers whilst slithering away for legal cover.”

He added: “It is time to drain the Canberra bureaucratic swamp with a royal commission to protect consumers.”