AMP chief executive Alexis George believes the regulatory framework for responsible entities needs to be “watertight” in light of the recent high-profile failures Shield and First Guardian master funds.
ASIC chair Joe Longo said last week, at an FSC event attended by George, that the standards for the “gatekeepers” of super – researchers, financial advisers, super trustees and responsible entities (REs) of managed investment schemes – needed to be raised.
The Shield and First Guardian collapses have left $1 billion of retirement savings of 11,000 investors in limbo, and George said the system must better work together to prevent these types of catastrophes.
“Listening to Joe Longo’s comments the other day, I think platforms do have some responsibilities but also we’ve got look at the regime around REs and making sure that is watertight,” George tells Professional Planner.
“Because that is where managed investment schemes come into play – and similarly as platform providers – if we see unusual activity happening with advisers, we’ve got an obligation to report that and to monitor it.
“We have to start using data to look for unusual activity or activity outside the norm and report it to the regulators. Maybe we could do more at an industry level to get the bad actors out.”
George, who celebrates four years as CEO this month, has led AMP’s revival, as CoreData Research shows trust has returned to the firm after its reputation was ravaged in the aftermath of the Hayne royal commission which was further compounded by cultural issues from executive hires.
The aftermath of the royal commission has seen AMP sell its life insurance business; asset management arm; and, most recently, it’s advice licensees.
The remaining parts of the business are the platform, super fund, the bank and the New Zealand wealth management arm.
“As we built the platform business, we did have a different of scrutiny over what we put on the platforms,” George says.
“As we sit here today – I’m not saying this will be forever – we’re the RE of every option that sits on our platform and I’m very cognisant of the responsibility that comes with being an RE. Of course, with super funds we’re a trustee. We have a level of scrutiny that goes over the top of any investment option that’s put on our platform.”
Political action
Despite the high-profile collapse, Minister for Financial Services Daniel Mulino has assured the advice community it hasn’t dampened his commitment to reforming financial advice laws, although he’s currently given no indication for further reactive reforms to the disaster.
But his shadow counterpart, NSW National Party MP Pat Conaghan, called for a “serious examination” of the regulatory framework and ASIC to understand why warning signs keep being missed.
“The Coalition stands ready to work with the Government to strengthen the system and restore trust,” Conaghan said in a media statement this week.
“We can’t undo the damage, but we can work responsibly to fix the system that allowed it to happen.”
Conaghan said that Labor should’ve taken action earlier after it had launched a review of the regulatory framework for managed investment schemes in the FY23 budget.
“Thousands of Australians have been left in limbo by the failure of the First Guardian Master Fund and the Shield managed investment schemes,” Conaghan said.
“Serious questions must be asked about every part of the system that allowed this to happen – from those promoting these products, to the platforms that enabled it, to the regulators meant to protect consumers.”
Conaghan noted that review was due over a year ago and no findings have been released, with the last statement from then Minister for Financial Services Stephen Jones dismissing speculation an outcome of the review had been decided.
“No action has been taken,” Conaghan said.
“Australians should expect and deserve better. As we see so often, it is the little guy who pays the cost of these failures. Everyday Australians who saved for retirement, sought advice, and trusted the system to protect them.”
Four star minimum
ASIC is investigating the role played by platform trustees and researchers in the billion-dollar collapse, in addition to the advisers and licensees involved in recommending the Shield and First Guardian products.
SQM Research has faced scrutiny for its role in the Shield and First Guardian failures which assigned ratings between 3.5 and 3.75 stars out of 5 to different options from the funds.
SQM owner and managing director Louis Christopher said recent media coverage has not presented the ratings in full or accurate context.
“These ratings reflected an ‘investment grade’ classification under our methodology, but they were at the lower end of that scale,” Christopher said in a LinkedIn post this week, noting that many platforms set a minimum threshold of four stars for product inclusion.
“Ratings in this range may reflect characteristics such as limited operating history or areas of governance requiring monitoring. Both funds were subsequently downgraded when we became concerned about limited disclosure, irregularities, and a lack of information from the fund managers.”
Christopher further defended the ratings process due to “irregularities in investment activities and the movement of investor funds”.
“It appears that these matters may not have been fully disclosed to ASIC, investors, advisers, platforms, or SQM Research,” Christopher said.
“We understand that ASIC has been investigating these matters for a significant period of time and that questions remain.”
