The Australian Securities and Investments Commission (ASIC) has pushed a consistent message that it is looking at the entire chain when investigating the potential failures that led to the collapse of both the Shield Master Fund and the First Guardian Master Fund.
With the funds representing around $1 billion in combined investor assets that are at risk, ASIC has put the lead generators, financial advisers, superannuation platforms, and research houses on notice.
Just last week, ASIC chair Joe Longo echoed the regulator’s recent messaging on these firm failures, stressing that while bad financial advice is “obviously a key part of this problem”, it’s far from the only one.
“There are a whole range of other entities that are involved in this process that we’re looking at – for example, the lead generators, the research houses, the superannuation trustees, and the managed investment schemes,” Longo said at an FSC event in Sydney.
“Because of the number of entities involved, it can be difficult even for experienced investors to spot the problems here and what’s really going on.”
He added: “When we look at these examples, we see that the various players across different sectors each represent just one aspect of the problem – a problem, in my view, that needs a holistic response from industry, regulators and from government.”
However, one sector that has so far avoided scrutiny is the auditors that signed off on Shield and First Guardian’s reports and compliance.
Keystone Asset Management, the responsible entity for Shield, has come under fire relating to allegations of related party loans to other entities that its directors controlled, however global accounting and audit firm BDO didn’t raise any issues with its compliance until 28 June 2024.
In its first compliance plan audit report, seen by ifa, covering the year to 30 June 2021, which it delivered on 27 October that year, BDO found Keystone had complied with its plan, though it had only registered Shield in May 2021.
Another report for the following financial year, which featured identical wording outside the dates, likewise found no concerns.
The FY2022–23 Shield compliance plan audit, however, raised myriad concerns over the directors’ actions, including a failure to provide BDO with “access to information that we require to form our opinion”.
This included the company’s books and records, as well as information on “related party transactions/balances, legal advice and corporate documentation”.
“The responsible entity have not met the requirements of their compliance plan in numerous instances during the year ended 30 June 2023, including, the financial reporting and lodgement obligations of itself as responsible entity or the scheme it manages for the year ended 30 June 2023 (and half years ended 31 December 2022 and 2023 for the scheme),” the report said.
BDO added that the directors had not been able to demonstrate they met disclosure requirements for product disclosure statements “as they relate to investment management and related parties disclosure, unit pricing errors, delays in the reporting of a breach and the remediation of a duplicate payment”.
It also lays out that the measures within the compliance plan are not adequate, though there is no mention of whether the plan had changed from that of prior years when BDO found it appropriate.
While this report was for the year ended 30 June 2023, BDO completed the report on 28 June 2024 – months after ASIC had issued interim stop orders, 10 days after the Federal Court froze Keystone’s assets, and two days after it had appointed Deloitte to report on Keystone’s financial position.
ifa approached BDO for comment, however, the firm said it is unable to comment on client matters.
First Guardian was not without its own audit concerns, with Audit Services Plus listed as the auditor for the scheme as of 25 May 2020, however, the firm was voluntarily deregistered on 13 June 2022.
Despite this, ASIC records appear to show that it may have lodged audit reports for First Guardian as recently as October 2024.
While the regulator was not able to confirm whether the deregistered firm had continued filing reports related to First Guardian, a spokesperson for ASIC said: “The investigations in relation to First Guardian are complex and ongoing. They encompass numerous lines of inquiry into the conduct of a large number of entities and individuals which range from lead generators, platform providers, funds and individuals involved in those funds through to auditors.”
Update: ASIC has since confirmed that the most recent First Guardian compliance plan audit report was lodged with ASIC in October 2024 by Audieto Australian Pty Ltd, not Audit Services Plus.
I’d also like to add, where is the consumer diligence here? All things fair about the criminality of the setup and the need to sort this out fairly and to nail the people responsible. But who moves 40 years of savings based on maybe a cold call or a social media inquiry to an unknown investment (to the consumer) with an adviser they haven’t previously used or heard of? Look up your adviser on ASIC’s Moneysmart. If they’ve changed licensee 5 times in 7 years, there’s a problem.If they tell you your Super is aweful and theirs is much better, run for the hills. A professional adviser would never tell you that, point out the differences yes and pros and cons but not an outright statement like was going on with this mob. Do your research people, please.
A bit too harsh there Duke.
Consumers don’t know this stuff, some are time poor and many are not engaged with their super.
(If Consumers were discerning, all the crypto nonsense would never have taken off)
Also, apparently, from other comments, the cold callers were pretty good and also pushy and persistent.
that’s a fair comment, and I’ll take that on the chin. I guess my thinking here is whether the same consumer would hand over the title to the house as easily as handing over their second biggest liffetime investment. I’m mostly dark on how we keep having to compensate for this rubbish.
Agreed.
Whilst WE would never be taken in and invest in this garbage, others have…and that absolutely sucks.
In the past, people have handed “over the title to the house as easily”. That effectively happened in the double gearing strategies of the Storm model (20-074MR). Thousands were left destitute (ABC 220318).
yes, I remember Storm Financial. Destroyed many lives.
Agreed!
I have unfortunately been caught up in this mess, but thankfully not all of my money was invested into shield and First Guardian. like MANY people had very little knowledge about superannuation and shares etc. and relied on my financial advisor knowledge and suggestions and after checking his credentials I felt confident to go with his choices.
I have a rather large circle of friends and family and I could probably count on 2 hands those who are knowledgeable in the areas or superannuation and investments. There is a HUGE gap in the education system!
The issue lies with Fraud, I am caught up in this and my soa said growth plan, diversified and that I would join the superannuation fund AusPrac Superannuation, I only researched AusPrac and everything looked good. Until, what was written on the SOA never happened. Ausprac handed my money to first guardian master fund (not displayed on my soa) and from there they were the ones to place it in the first guardian growth strategies, which I was lead to believe was managed by AusPrac ( but this was also false information). First Guardian Master fund never diversified my money and outright mismanaged it. There are protections for fraud in place to keep the superannuation scheme alive, however, there is no guarantee I will get my money back because the mess, that is our situation, is so deep. From ASIC failures to regulate this fund, from the research houses giving this fund a higher rating than deserved, from trustees missing every red flag…… Then the licensees and advisors. Where there kick backs on every level, I am under the impression there was. It is disgusting to learn what they did with my money and being just a labour with no knowledge of the financial system I couldn’t have known all these failures. I understand not wanting to help out your fellow Australians and thinking we were greedy and jumped into high risk and now we want a bail out, but that is so far from the truth. Many people caught up in this were close to retirement and had low risk on their soa’s. Some SOA weren’t even signed!! It is a huge mess and shows how frail and easily exploited it really is. We are talking about 4.1 trillion just out there for the picking……
No one is mentioning the elephant in the room: GREED. The consumer was told they could triple their super and their eyes lit up andf they singed that dodgy SOA ASAP. Yes everything else was a failure and most likely criminal… no disagreement with any of it… but greedy consumers fell prey to opportunist greedy advisers. Same with storm financial. To cry “im financially illiterate and didn’t know what i was doing…” is nonsense. You where offered a quick money grab and you blindly took it. Harsh but true.
Once again the financial planners who work diligently for their clients and would never use a boiler room set up like this one will wind up paying the bill and taking a hit on their reputation. Having done a bit of digging, I cannot see how this could have come to be without some serious financial kick backs somewhere in the supply chain, and most likely eye watering kpi requirements on the authorised representatives using leads generated by getting around the direct marketing bans. Then you have a fund which operated so far out of its mandate you don’t know where to start. Start looking into this and you fall down the rabbit hole. As usual with ASIC and APRA snoozing through until the wheels fall off, we will carry the burden.
There are so many players in this, but teh one thing they have in common is they are regulated by ASIC…and yet somehow ASIC doesn’t think it has done anything wrong.
Government should be fully compensating the people that have lost their savings, not other financial advisers.
Dont forget to ask your local member why their Government agencies let them down.
I have lost everything because of this sham. I was repeatedly told that the fund was performing as it should and the problem was the wording in their PDS. I’m not savvy with these things, hence I used a Financial advisor who turned out to be as dodgy as the investment fund. I’m devastated. I’m 60yo and don’t have enough work life to make up the funds for my retirement.
Make sure you lodge your comaplaint with AFCA if you haven’t already done so.
Me too! It is a SHIT situation!
I feel very upset for the people caught up in this disgusting series of events. My partner had a nervous breakdown on hearing her savings/super of approx 99k had been frozen. It doesn’t get any better not knowing whether that savings will be reinstated. I strongly beleive the financial advisors and auditors should be held accountable , if not Government entities as well. Makes me sick that they will tie the investors up from accessing their investments whilst the perpetrators sit back and enjoy their life as if nothing matters. Shame on them and shame on the individuals involved.
I’m in the same boat. We should be repaid every cent as well as compensation!
Please make sure you lodge a complaint with AFCA at earliest opportunity., thid will start the ball rolling for you.
All of us honest advisers are sick to the stomach with this horrible news and way you were all treated. We hope you are able to get your fees refunded then look at compensation.
Personally I am helping some of you get back on track and some of the stories I am hearing are heart wrenching
May those that did this get punished and lose thier ill gotten gains and financial future and most importantly do jail time with the rest of the crooks.
ah yes i’ve read your posts on reddit. thank you for your advice
I can’t help but be so FREAKING angry, (allegedly) those greedy MOFO’s stooped so low as to essentially STEAL millions of $ from hard working Australians… for eg. mortgage repayments for a 9mil home?!?! WTAF?!?!?! Meanwhile I was homeless for about a year working my ass off whatever job I could to pull myself out of a slump!
So true! It is ASTOUNDING that this has occurred, I feel for your friend I am also in the same boat with my super.
I’m sure the rest of the accountant and auditor community totally unrelated to this issue will chip in to fund for any client losses incurred from any wrongdoing. Hold on, that only happens in the financial planning industry.
Very disappointed to see the role of auditors here. By the way, question for ASIC, what about role of the CUSTODIANS of these MISs/Funds?
Lots of people living in mansions and driving Ferraris living off other peoples hard earned money. Where is the justice ?
AMEN!
What an absolute joke, but no matter. It’ll still be the financial advisers fault and advisers 1,000’s of kilometers away from this will pay the cost of the remediation and professional tarnish.
Congratulations Canberra for delivering an absolutely rubbish system which is deeply unfair and totally disgusting.
Only a place like Canberra could invent such a thing.
What’s needed is an investigation into ASIC and their relationship with the market.
Wow. More interesting stuff keeps coming out on what is clearly a diabolical mess. You can only wonder what ASIC were doing when the auditors missed their September 2023 deadline by 9 months.
In terms of auditors, we should also be looking at the whole Dixon Advisory debacle, where Deloittes were the auditor of the US Masters Residential Property Fund (URF) from the start in 2011. They were also the investigating accountant for the prospectus to issue convertible step-up preference units in late 2017. How is it that they have not been subject to any scrutiny over their role in that matter?
Wow. MIS/Scheme Compliance Plan Audits are due 3 months after the end of FY. The alarm bells for KAM/Shield should have been ringing very loudly by 30 Sep 2023.
How were these guys not under investigation earlier? Seems to me that should be the first port of call, rather than point the spotlight on the advisers, research houses, and platforms who relied on the quality of these reports.
Good question. All the audit reports were submitted to ASIC. They had the evidence!
and AFSL’s use research house as consideration for adding the investments to their APL
Of course. Looks like the source these parties all looked at was just sub-standard. Especially looking at FRC’s recent comments on the quality of BDOs work
Lol – tell that to the journalists at some of Australia’s big mastheads.
One author there says in his articles that an investigation should be undertaken into adviser ‘commissions’.
Nothing better than jumping on the adviser bashing train. Easy sport.
Doesn’t matter that commissions were banned in 2013.
Utter crap.
Hang on there mate. Ferras Merhi was paid $17 million dollars in “marketing fees” for putting clients into these funds. It has now come out in The Australian’s investigation that the fees paid to Merhi and the fees paid to the lead generators were paid directly out of members contributions which were supposed to be getting invested.
That wasn’t a commission. It was an under the table payment which had no official agreement. The justification of a marketing fee came after he was caught out and damage had been done.
Adviser standards do not allow for ANY conflicts of interest, yet there will always be those who go against the rules out of self interest. What do you suggest the government do? Add more red tape and doubly ban commissions and conflicts of interest?
I personally would start by making enforcement proactive on all fronts and holding ALL stakeholders accountable.
The ball was dropped on all levels from adviser to AFSL to product to trustee to auditors and to ASIC (who had been warned multiple times before any funds were lost), yet compensation will only come from one of these. Advisers.
Mostly the AFSL. As soon as there were concerns about the Adviser/s it should have acted decisively – which it appears not to have done.
In the John Doyle/RI Advice case, the AFSL was ordered to pay a $6M penalty (22-012MR). In that case, the magnitude of detriment was much less than here.
Just look up Merhi on Moneysmart, all you need to know. Warning bells everywhere.