In the midst of the slow motion car crash that is the Shield and First Guardian collapses, the unfortunately common natural instinct of people to shift the blame to everyone else and avoid responsibility for their own actions has reared its head.
Whether or not any of the people involved truly believe they are blameless – or whether anyone actually is wholly blameless – is impossible to tell.
For most sitting on the outside looking in, it’s hard to rationalise how any link in the chain could sincerely believe they met the standard that was expected of them under their various professional obligations.
However, we largely judge ourselves on our intentions and others on their actions, and an individual convincing themselves that they can skirt the rules and enrich themselves without hurting anyone is far more common than setting out with a desire to cause harm.
If ASIC chair Joe Longo’s rough range of impacted clients across the full range of funds it is currently investigating is anything to go by, that harm is set to hit as many as 30,000 Australians.
The only party that has taken ownership of their role in failing consumers is Macquarie, with the financial giant’s super fund trustee reaching a deal with ASIC to cover the $321 million of investments in Shield from around 3,000 members.
The fund managers are, rightfully, the first port of call for everyone else tied up in this mess looking to shift blame.
It’s far from where the finger-pointing ends.
Indeed, you would be hard-pressed to find someone that hasn’t been thrown under the bus, from the regulator to the auditors and everyone in between.
Last week, ASIC deputy chair Sarah Court summed it up well in a parliamentary committee hearing.
“One of the challenges with these matters is that in a sense, everyone is pointing fingers at everyone else,” Court said.
“For example, the financial advisers are saying to us, ‘Well look, you can’t hold us accountable for this ASIC, because the ratings house had rated these funds, or at least the Shield Master Fund, as of investment grade.’ Super fund trustees are telling us the same thing, saying, ‘Well we relied on the ratings houses’ or ‘We relied on the fact that these members had financial advice.’”
In that same hearing, Labor senator Deborah O’Neill lumped a lot of blame on advisers, saying “there’s enough there who are looking at a very lucrative business model by ripping off their fellow Australians”.
Somehow, this resulted in ASIC defending advisers, which many within the profession may feel is a rare occurrence.
The next step was – as is their wont – the opposition piling some blame on the government for good measure.
“Labor can’t run forever. Smearing advisers won’t fix broken laws. We need targeted action against fraudsters, their business models and the loopholes they exploit,” shadow financial services minister Pat Conaghan said.
Sequoia boss Garry Crole has simultaneously denied advisers licensed through InterPrac engaged in poor practices and ceased their authorisations, while also arguing trustees were deceived but should bear the brunt of the cost.
Former Venture Egg boss Ferras Merhi even dragged Google and Facebook into the debacle, claiming most of the $19 million his lead generation firm was paid is sitting in the tech giants’ coffers.
Zooming out, the sad reality is that had any of the parties involved either done their jobs properly or realised something was off, a lot of pain could have been avoided.
Instead, conduct ranged from outright criminal to complicit, negligent, lazy or gullible.
Apply the labels as you see fit.
When all is said and done, no one will come out of this looking good. It won’t matter that the parties involved are a tiny part of the overall system, the damage will hit everyone.
The metaphor du jour has largely been links in a chain, but with the circle of finger-pointing, it is closer to an ouroboros of poor conduct devouring itself.
Hopefully, it doesn’t take everyone else down with it.
Great article.
Perfect summary, Keith.
Sorry Keith, but there is a very large group of people who ARE totally blameless in all this, who are being unfairly punished. The honest majority of financial advisers are going to have to pay remediation for some of this through CSLR, even though they had absolutely nothing to do with it. They are also having their reputations tarnished by deliberate generalised smears from union thugs like Deborah O’Neill and her comrades in SMC, and by generalised and inaccurate reporting in the media.
Some will say “well why didn’t the honest advisers do more to stop the dodgy ones?”. But financial advisers are powerless to stop poor behaviour by other financial advisers. There is no peer regulation via a manadatory professional standards body for financial advisers like there is for doctors, lawyers, and accountants. All controlling power over financial advisers rests with licensees (who are mostly conflicted product companies) and the regulators.
The only practical option available for honest advisers is to report bad behaviour to ASIC. Many advisers have done this many times. But ASIC routinely ignores it until it’s far too late to prevent significant consumer harm.
I hear you but as one of the victims, sorry, it is hard to have any empathy. I agree it is so unfair to tarnish everyonbe with the same brush but sadly the consequences are just too huge to not 🙁 We have a good advisor now but I struggle to even trust him now.
As a Risk only adviser, this is funny – until I realise my CSLR fee’s will only continue to increase because of this type of debacle. Which leads me to question, should there be specific advice carve outs for CSLR? Why am I left holding the tin for something I don’t offer to my clients? Also, at what point does the Australian Public start realising that if you are being cold called and offered a better investment in Super that its probably going to end in heartache?
Not everyone was cold called Equity Trustees presented themselves very professionally
Very unfair comment.
Great read, very well said! How can the advice be called “appropriate” and in the best interests, then these same advisors get sent packing? What were they sent packing for then? Hmmm
Interprac’s CEO is the most delusional of them all. Hopefully they get dragged through the courts to compensate losses, interest and the psychological damages on members they have caused by “trusting others” to do their job! Macquarie seems to be the only one that came to the table to try and make right to a degree what went wrong. Time the others, including ASIC come to the table and admit they had it wrong. Compensate these members, do what is right to them that have suffered immensely through this mess the last 3 years. If they don’t do it now, the costs will escalate the longer this drag out. The $1.1billion will become much larger as these members go into retirement. Here’s significant lessons to be learned to fix this industry before citizens lose trust in the Australian super system. Those parties that still blame others, their reputation should take it hit and hopefully through court actions they learn the hardway to fix this mess they were part of and happy to take commissions and significant fees from the vulnerable.
Excellent summary.
Can’t agree. What took place in this disaster was fraud. Fraud by the managers and the direct advisers involved. The funds didn’t fail because they were ‘new’. Nor because they “didn’t meet their investment objectives.” They didn’t meet their investment objectives because of the fraud. That’s the primary cause. If there was no fraud, there would no event.
It could be argued the industry wasn’t ready for this type of fraud. When was the last time am Australian fund manager was caught out publishing false returns and fictitious asset allocations? Let’s just say not for a very, very long time.
So who is responsible for finding the fraud? There are four clear bodies:
1) The auditors who purport to look for fraud.
2) The Responsible entities who are meant to report on the returns of the fund.
3) The custodians who are meant to be presiding over the reported assets.
4) ASIC.
It’ not the platform’s job to pick up fraud. It’s not the job of the researcher. Neither is it the responsibility of the overall adviser community.
Hey, what about the media in all this? I have seen so much irresponsible reporting on this saga. It’s gross. If there is any group that can be accused of inaccurate finger pointing, it’s the media! And let’s not forget the media were used to promote the funds as well. Maybe the media should take some responsibility?!
Sounds absurd? Good.
Well now you know how some of us feel that have been caught up in this mess, despite reasonably just doing their job.
If you were “caught-up” in this mess, you were either very naive or very stupid.
It’s actually naive and stupid to finger point when you don’t have all the facts. But yeah, sure, let the witch hunt continue.
That is very very unfair. We are not dummies and did our homework. Thanks for making us feel even more shit, Enjoy YOUR retirement. Thanks for your empathy.
The rating houses should be sued.
The finger pointers should be sued.
“Zooming out, the sad reality is that had any of the parties involved either done their jobs properly or realised something was off, a lot of pain could have been avoided.”
Not enough questions are being asked of ASIC. Had they actually acted earlier things would be vastly different. Inaction is a common outcome with ASIC, just ask any adviser how many times they have reported something to ASIC only to be met with the sound of silence.
How about ASIC do their job and chase the criminals who have stolen this money. A billion dollars doesn’t just disappear. It seems everyone is looking for a bail out while those who have stolen the money have waltzed off without any consequences, just like Dixons. Until ASIC actually does something about this type of fraudulent activity it will be repeated again and again.
So true. ASIC needs to show the public what they are doing to recover the money.
Assume Netwealth is next in line to put their hands in their pocket?? they have stayed awfully silent……not a great look for them