The head of the peak body for financial advisers said the distribution of Shield and First Guardian master funds was driven purely by product sales, not financial advice.
Financial Advice Association Australia chief executive Sarah Abood told the group’s national congress in Perth on Tuesday morning that the collapse is one of the major issues “confronting” the profession.
“At least some cases they were relentlessly pursued to take action by getting advice on how their super could grow faster,” Abood said.
“Advice that always ended up being, to roll into Shield or First Guardian, sometimes that very same day. That’s not advice, that’s product sales. And hawking financial products is illegal.”
Super Consumers Australia and the Super Members Council have argued the cold callers used a loophole in the law that stops the unsolicited sale of financial products but not the unsolicited sale of a financial service or social media lead generation.
Abood said the view of the association is that high-pressure sales tactics have no place in professional advice.
“If there are quibbles or loopholes that some believe make these tactics technically legal, then they shouldn’t be,” Abood said.
“Urgent action should be taken, to unambiguously ban these practices from professional financial advice.
“I’m furious that the selfish actions of a few rogue advice firms risk bringing our profession into disrepute, and undermining the fantastic work done by thousands of professional advisers every day.”
ASIC alleged that over $19 million in marketing payments were made to Ferras Merhi, who was an authorised representative of InterPrac until the licensee terminated their relation in May, by entities related to Shield and First Guardian to market the fund.
“If that’s the case then these payments are already illegal – conflicted remuneration was banned under the FOFA reforms from the first of July 2013, more than a decade ago,” Abood said.
“It looks like our challenge here is not changing the law, it’s getting better at detecting breaches, and faster at enforcement.”
Abood said the “lion’s share” of the blame lies with the funds themselves including the directors and conflicts of interest with related-party deals.
“[And] potentially, the outright fraud,” Abood said.
Furthermore, the association noted ASIC’s recent admission that it’s 140 individuals and entities being investigated (rather than 140 advisers) and that it’s a handful of advisers responsible for the misconduct.
“That includes the funds and investments of course, the responsible entities, the auditors, the platforms and super funds, the research house, the cold calling firms – and advisers and licensees,” Abood said.
However, Abood acknowledged that poor financial advice played apart even with the caveat it was from a few “rogue” advisers.
ASIC has cancelled four licensees that were tied to giving advice on Shield or First Guardian, while InterPrac is being taken to court which was announced last week by the regulator.
“How is it, that so much damage has been done by so few, to so many? It certainly looks like underlying this complex matter could be something quite simple – simple greed,” Abood said.
“It beggars belief that so many people and so much money was funnelled into these unknown products so quickly, without some substantial incentive. We don’t yet know whether it was the individual advisers, or just the leadership of the businesses that were involved.”
The $1.2 billion collapse of the Shield and First Guardian master funds has left the retirement savings of approximately 11,000 people up in the air.
ASIC shut down the funds due to concerns over misuse of investor money, including spending on luxury personal expenses and inappropriate investments into pet projects of directors of the fund.
Several advisers have already been banned by the regulator, while Venture Egg head Ferras Merhi is currently on trial in Federal Court due to allegations they gave conflicted advice not in the best interests of clients.
The regulator is also taking SQM Research to court over allegations it failed to do proper due diligence of the funds.
ASIC is suing Equity Trustees, while Macquarie came to an arrangement with ASIC to reimburse Shield investors on its platform.
The regulator is expected to take action against Netwealth and Diversa Trustees, with the former also applying for government assistance to remediate clients. Equity Trustees and Diversa Trustees are expected to do the same.
So Advisers go through years of pai, study, exams, codes and revenue squeeze to become ‘a profession’ yet these clowns are still out there selling product like they were back working in the ‘Big 4’.
There is something very wrong in the whole industry and related services. Then again, I assume they were likely based on the Gold Coast where this kind of thing is commonplace, apparently.