An AFCA determination related to advice given to clients who invested in the Shield and First Guardian master funds has found lead generators received commissions for advice referrals.
The lead determination for Financial Services Group Australia shows the advice given to clients relied on information gathered by lead generation services, and didn’t appear to involve any direct communication between the adviser who signed the Statement of Advice.
Furthermore, the determination shows that the lead generator – which wasn’t licensed to give financial advice – received 70 per cent of the initial advice fee the complainant paid, and 40 per cent of ongoing advice fees.
The regulator had alleged in court filings that the funds paid the advice firms who in turn funded the lead generators, but this determination shows evidence the lead generators received fees directly from the advice.
The complainant, a client of 5 Point Australia which was an authorised representative of FSGA, was advised to rollover her existing superannuation of $241,994.03 from Aware Super to New Quantum Super to invest in the “5 Point High Growth Fund (Standard)” which included a 60 per cent allocation to Shield and First Guardian.
In a video explaining the decision, AFCA lead ombudsman for advice Shail Singh said FSGA never responded to the complaint authority’s request for information.
Singh said the complainant wasn’t clearly told that 60 per cent of that fund was invested in the Shield and First Guardian.
“The firm had a clear obligation to act in the best interest of the complainants and provide appropriate, well-supported financial advice,” Singh said.
“That did not happen. The ombudsman found that it was fair that the financial firm compensate the complainant, minus any returns they may receive from the liquidation of the firm or the wind-up of Shield and First Guardian.”
AFCA had published the lead decisions against four firms involved in distributing the Shield and First Guardian funds which found that clients were victims of poor advice.
Singh will be speaking at the Professional Planner Advice Policy Summit next month about the work being done by external dispute resolution service in the aftermath of the collapse of Shield and First Guardian.
The complainant was awarded compensation of $123,738.05 for capital losses, plus $72,511.12 for returns lost by exiting her previous fund for a total compensation award of $196,249.17.
The determination found the advice to exit the Aware Super Future Saver High Growth portfolio was inappropriate “as this was a large, diversified fund with a significant performance history and which met her needs”.
“The financial firm misled the complainant to believe this was likely to have a poor future performance without any basis,” the determination said.
The complainant received a Statement of Advice on 13 October 2023 that would place her investments into the “5 Point High Growth Fund (Standard)” which was made up of the following investments (see below).
| Betashares Global Sustainability Leaders ETF | 5% |
| Betashares Nasdaq 100 ETF | 5% |
| Loftus Peak Global Disruption Fund | 10% |
| Cash | 5% |
| Euree Multi-Asset Growth Fund | 15% |
| First Guardian Defensive Strategies | 20% |
| Shield Master Fund – Balanced Class | 20% |
| Shield Master Fund – Growth Class | 20% |
| Source: AFCA determination | |
The determination found FSGA used misleading performance to justify the performance of the Shield and First Guardian funds by using a five-year window despite those funds not having a full track record over that time.
“On balance, the panel is satisfied the manipulation in choosing the timing of the comparison data used was designed to influence the decision of the client and was unreasonable in the circumstances,” the determination said.
The $1 billion collapse of Shield and First Guardian has affected the retirement savings of 12,000 superannuants, but AFCA so far has only received 1800 complaints.
FSGA was the licensee of advice firms 5 Point Australia, Rebellis Financial Services, AS Financial Planning and STC Financial Planning.
Clients of any FSGA firms have until 4 June 2026 to make a complaint to AFCA.
The licensee was owned by Ferras Merhi, the adviser ASIC alleges has been central to the advised distribution of the Shield and First Guardian funds.
Merhi was licensed by FSGA as well as InterPrac Financial Planning, the only licensee implicated in the collapse of Shield and First Guardian that hasn’t been cancelled, but is still being sued by the regulator.
He is allegedly responsible for signing more than 6000 Statements of Advice within a three-year period and has been accused of taking money from the funds to help market them and receiving inflated loans from the fund to help purchase his businesses.
Shield and First Guardian grew due to a sophisticated network of lead generators that contacted people who used online ‘superannuation health check’ advertisements and used high pressure sales tactics to refer them to financial advisers.
ASIC acted against the funds over concerns investor money was being misused on high-risk investments, pet projects of the directors and personal expenses.
While ASIC has centred its investigation on the advisers, lead generators and managers of the funds, it is also taking action against SQM Research for inadequate research reports of the funds, as well as Diversa Trustees and Equity Trustees over allegations both failed to conduct proper oversight when hosting the funds.
