Macquarie’s landmark deal to remediate Shield investors on its platform was not only great PR for clients but paved the way for a good faith negotiation that would make consumers whole.
On the surface of it, it would seem crazy not to do so – Macquarie is unlikely to take the full $321 million hit since some of the finances will be recovered, albeit cents on the dollar (Macquarie estimates it will get 70 cents to the dollar back).
And with a self-touted “56 years of unbroken profitability” including $3.7 billion in profit in its most recent financial year report, it can certainly absorb the cost.
Roughly 3000 of the 11,000 Australians that have been affected by the collapse of the Shield and First Guardian master funds can breathe a sigh of relief that their retirements have only suffered a setback rather than being completely destroyed.
It doesn’t absolve the poor advice or mismanagement involved from advisers and the responsible entities of the funds, but that is for the law to continue to pursue.
For the other trustees involved – Equity Trustees, Diversa Trustees and Netwealth – remediation may not be as easy of a solution, but with looming legal costs and PR crisis it may still become the path of least resistance.
Then there are the advisers.
The shift from product-led institutional advice models to a decentralised and fragmented advice landscape has meant advisers have become the primary decision makers for where client money is allocated, and this is done with the client’s best interest in mind.
If you’re an adviser allocating client money to an oversaturated platform market, which option do you think is going to be in their best interest: the trustees that remediated clients for fraudulent products that made their approved product list or the ones that didn’t?
For advisers, sending client money to a platform that has shown leadership in taking accountability would be a no brainer, but thatdoesn’t settle the best interests duty, even if the underlying advice strategy does.
But if the trustee has a track record for accountability when things go wrong, then having client money on a platform provider that has shown it will be the last line of defence in a catastrophic event is arguably in the client’s best interest.
Equity Trustees believes that Macquarie’s situation was different to their own – it was the branded platform operator and trustee. ASIC has noted that the group’s branding was used in documentation given to clients.
A source close to the group told Professional Planner that other avenues for compensation should be used, like the Compensation Scheme of Last Resort, going so far as to say members have been pointed in that direction.
But it’s the broader advice community – who had nothing to do with the collapse – that will be required to fund the scheme, a cost that will be passed onto consumers in most circumstances.
Equity Trustees share price closed at $33.39 on 22 August and was $23.33 at close of market on Friday.In the past year the share price has dropped 23 per cent.
Diversa Trustees declined to comment on any potential plans and an update from Netwealth sent to investors noted ASIC’s investigation into First Guardian, the only one of the two funds held on the platform, was less progressed than into Shield. The Netwealth update offered no indication about the direction the company would take but said that it is continuing to “explore all avenues available”.
ASIC hasn’t commenced any official proceedings against Netwealth like it has with Equity Trustees or Macquarie, and the share price hasn’t been affected to the same degree – the $30.29 it closed at on Friday is lower than the $37 level it surpassed in August, but it’s still up 20 per cent over the last 12 months. .
Even with the CSLR, clients won’t be made whole given the $150,000 cap and what will be tested in the Shield case is whether clients on the Macquarie platform will still pursue an AFCA complaint.
Given Macquarie’s remediation only covers what was initially invested into the fund, AFCA’s “but for” determinations would mean they would be entitled to investment gains missed out on because of poor advice.
This would be done as a complaint against the advice firms and licensees – almost all have gone into liquidation or administration, the major exception being Seqouia-owned InterPrac – meaning those cases would go to the CSLR.
On Friday, shadow Minister for Financial Services Pat Conaghan went as far as urging Labor to speed up reforming the CSLR, including the recommended change from the scheme to exclude “but for” complaints.
“Without a timely decision, the CSLR will run out of funds – leaving thousands of victims unpaid,” Conaghan said.
“The need for another special levy proves the scheme is fundamentally broken. But while Labor delay, there is a real risk that victims will go without. Every month of delay risks leaving families with nothing, while advisers are left with the possibility of unbearable costs on their industry for things that were simply out of their control.”
But as the profession waits for Minister for Financial Services Daniel Mulino to make difficult decisions about the future of the scheme, a self-directed approach from the trustees that hosted the Shield and First Gurdian master funds is needed to show the broader industry is capable of accountability.
