The impact of Dixon Advisory and United Global Capital (UGC) on the financial advice subsector through the Compensation Scheme of Last Resort (CSLR) is, at this point, well understood.
In the cases of UGC and Dixon, they were vertically integrated groups that had their own advisers putting client investments into related parties.
While the collapse of the funds is where the failure stemmed in both cases, the advice being provided under the firms’ own Australian Financial Services licensees provided a clear avenue for insolvency and the bill being passed onto the broader profession through the CSLR.
It’s an unfair burden on advisers, but it previously seemed as though it would be one limited (though even “limited” it poses a serious threat to the sustainability of the profession) to these vertically integrated models.
However, that no longer seems to be the case.
In a new paper, Financial Advice Association Australia (FAAA) general manager policy, advocacy and standards, Phil Anderson has pointed to the CSLR’s May announcement that there would be an underspend of the 2024–25 CSLR levy as containing a concerning detail.
According to CSLR chief executive David Berry in the release, the scheme has seen multiple large-scale firm failures within the personal financial advice sector beyond the Dixon Advisory collapse, with at least two of these failures potentially leading to more than 800 claims.
“These failures continue to significantly impact the amount of compensation likely to be paid in the coming financial years. The key driver to the timing of payments remains the speed at which the CSLR receives claims,” Berry said.
Doing some quick maths based on previously released average claim values for Dixon and UGC of around or above $120,000, Anderson said this could “easily mean $100 million or more”.
“The financial advice profession has already been stung very hard by the CSLR exposure to Dixon Advisory and UGC, and many advisers are concerned about when and where the next major event will come from,” he said.
“It appears that there are two new matters that they should be rightly concerned about. These two matters, which have achieved a lot of media coverage in the last six to 12 months, are Shield Master Fund and First Guardian Master Fund.
“There are striking similarities between these two new matters, both involving the collapse of investment funds that appear to have been invested in property development, property loans and other business loans.”
ifa had flagged in September 2024 that the turmoil surrounding the Shield Master Fund – a registered managed fund promoted by Keystone Asset Management – could spell trouble for advisers.
At the time, Anderson told ifa that the likelihood of massive fallout for advisers was minimal, as isolated instances were easier to contain than integrated failures.
“If individual advisers who are operating as individuals, then it is less likely, if there’s appropriate controls in place, that we see something that is a black swan-type matter like we’re seeing with Dixon Advisory,” he said last year.
Largely, this is because the losses would need to be large enough that it would push an unaligned licensee into insolvency.
As the scale of advice client exposure to both Shield and First Guardian have come to light, that now looks like it could happen.
The Venture Egg problem
Just last week, ASIC cancelled Financial Services Group Australia’s (FSGA) AFSL and permanently banned responsible manager (RM) Graham Holmes.
Ferras Merhi, who himself shows as ceased on the Financial Advisers Register as of 31 May, was the sole director of FSGA from 10 February 2021 to 30 May 2025.
Despite being the sole director of FSGA, Merhi and his advice firm Venture Egg Financial Services were both authorised representatives of InterPrac Financial Planning until the end of last month.
In April, Garry Crole, managing director of InterPrac’s parent company Sequoia, told ifa that the firm is working with ASIC as it investigates Merhi and Venture Egg.
While there is no suggestion at this point that the InterPrac’s exposure will see it shut down, according to Merhi’s previous media comments, Venture Egg has about 5,000 clients with $250 million in Shield, and 3,600 clients with $192 million invested in First Guardian.
Even for a large licensee like InterPrac, compensation related to $442 million of client money in collapsed funds would be tough to cover.
“This raises a question as to why the collapse of two investment funds has a direct impact on the CSLR exposure of the financial advice profession,” Anderson said.
“Firstly, it shouldn’t, unless the provision of personal financial product advice to retail clients is involved, and unless the likely successful AFCA claims are large enough to bring down one or more of the licensees who were involved. If numerous licensees were involved and none were overly exposed, then this is less likely to be a material factor impacting the CSLR.”
Importantly, he noted, there is no clear understanding of exactly how large the losses in either Shield or First Guardian will be. All that is certain is that they have the potential to be “substantial”.
“Seemingly, many of the clients have ended up with a large percentage of their portfolio invested in either one or both of these funds,” Anderson said.
“Neither do we know the extent of the exposure of each of the licensees to each of these funds.”
He added: “We will need to carefully monitor the progress of the Shield and First Guardian matters to understand the likely impact on the CSLR; however the warning sirens are certainly going off.”
not sure how SEQ will survive this – they look to be making a move on CAF alongside WAG – a desperate move but not sure how CAF would possibly play ball given the Interprac liabilities in the background. They spent $8m on the CAF stake just recently leaving them with $5m cash only. Im thinking SEQ see a CAF acquisition as 1+1=3 but more likely 1+1= 0 !
Why aren’t the masterminds of these schemes thrown into jail?
It’s all going according to plan Muttley soon there will be no advisers left…!
What other profession or trade is made to pay for totally unrelated business / advice that has caused a loss ?
Govt THEFT from Good Advisers to prop up useless ASIC and other poor Regulators.
Two things:
1. Why should unaligned advisers need to pay for what is a vertically integrated product failure? Why isn’t there a product providers CSLR?
2. What is the purpose of PI?
This is excellent reporting from Keith Ford—he deserves credit for being the first to openly examine the probability that InterPrac could be forced to shut down as a result of this Venture Egg debacle. Most coverage has skirted around the issue, but Ford’s analysis connects the dots between the scale of compensation claims and the exposure vulnerabilities in InterPrac’s business. When he says the compensation “would be tough to cover,” that’s a polite understatement; the numbers involved are so large ($442m) that it’s hard to see how InterPrac could survive without major external cash intervention, something its parent company Sequoia is unlikely to have the capacity to do.
The reality is that InterPrac’s professional indemnity (PI) insurance is likely capped at around $20 million, which is standard for licensees of this size and risk profile. However, with AFCA determinations and compensation claims from the Venture Egg very likely far exceeding that cap, the likelihood is that InterPrac would be pushed into insolvency. This would leave a substantial portion of the unpaid bill to be picked up by the Compensation Scheme of Last Resort (CSLR), ultimately impacting the entire advice profession.
In the case of Shield and First Guardian, were the financial advisers acting within their professional and regulatory obligations by recommending portfolios that had been approved by the licensee and constructed under the guidance of the firm’s investment committee??
Financial advisers are not gatekeepers with a crystal ball, nor are they expected to anticipate or uncover potential misconduct by directors of product issuers such as Shield and First Guardian. Their role is to act in the best interests of their clients by:
• Conducting thorough due diligence using available and reliable information, such as Product Disclosure Statements (PDS), Target Market Determinations (TMDs), independent research, and
• Assessing suitability based on the client’s objectives, financial situation, and needs.
Advisers reasonably rely on the integrity of the licensee’s governance structures, including the investment committee, as well as on the regulatory approvals and disclosures provided by the product issuer. Unless there are clear red flags or publicly available evidence of wrongdoing, advisers cannot be expected to foresee or detect corporate misconduct behind the scenes. Holding advisers accountable for undisclosed or concealed actions by directors would not only be unreasonable, but would also undermine the role of regulators, auditors, and licensees who are specifically tasked with that oversight.
As is often the case, the financial adviser becomes the easiest and most visible target, while the real misconduct, committed behind closed doors by those in control of the product and approving the product, often escapes accountability once again.
What is the point of an adviser having appropriate PI in place if CSLR is picking up the tab?
At what point do the regular planners the 99.5% who do the right thing start passing a reasonable portion of this levy onto clients thus further pricing out regular Mums and Dads from being able to afford to pay for advice.
Advisers love paying misappropriated funds by fund managers – Thanks CSLR.
Has anybody thought about holding the funds management professionally indemnity accountable to fund all losses whether it be illegal or actual true losses.
Thanks ASIC. Great job.
Way to kill off a profession. As long as the final adviser turns out the light as they leave. #ClimateChange
How can anyone think that it’s a fair system that foists the compensation bill for these failures onto industry participants who had nothing to do with them?
Why didn’t ASIC and the research entities do something about Shield earlier? From the outside it appears to have started out ok but with no real substance and quickly became an outright fraud by someone — who exactly isn’t that easy to work out from the outside but ASIC sat there and did nothing whilst millions got invested into a fund that had no real credibility beyond its research rating. It’s easy to do nothing when someone else pays for your incompetence.
I love paying for other peoples illegal activities – Said no adviser ever.