Something’s wrong when the biggest bill lands with the smallest players

In July I sat in a room with five other advice licensees. Between us, we authorised 936 advisers and accounted for $48.2 billion under advice.

We put our actual accounts for last financial year on the wall and added them up. This was not a survey and not a model, but six sets of real numbers.

The advice relationships in those six businesses generated $741 million of revenue across the financial services chain.

Of that, $416 million went to platforms, investment managers and insurers. That money never appears in an advice business’s accounts. We do not invoice it and we never see it.

So, a total of $325 million arrived with the licensees. Of that, $283 million went to the advisers themselves, and $30 million went to operating costs, which is licensing, compliance, technology and professional indemnity.

After that, $11 million was left, across six licensees and 936 advisers, for a year’s work.

The chart below plots each segment’s valuation multiple against measured risk. Platforms carry the lowest risk and trade at about 95 times earnings; listed advice businesses trade at about 11 times on the same measure; advisory networks carry the highest risk and the lowest multiple. I used to call that pricing revenue rather than risk. I no longer think that is right, or platforms would carry the heaviest rating.

A platform trustee does two entirely different jobs: it runs an administrative business, onboarding product and collecting basis points, stable and scalable; and it holds a fiduciary position, deciding what goes on the menu and serving members’ interests ahead of anybody else’s. Different in kind and consequence, yet the market has collapsed both into a single number that prices the first and ignores the second, a distinction it appears to have forgotten.

And then Shield happened, and for once the money came out of the fiduciary limb rather than adviser professional indemnity. Macquarie paid about $321 million over Shield. Netwealth paid more than $100 million over First Guardian, out of a segment your own market rates at 0.3.

The trustee is the gate

If a product is not on a platform, it is effectively unavailable, since a licensee will not put on an approved list what an adviser cannot reach at retail level. The trustee is the gate; saying yes is not merely admitting a product to a menu, it is lending it their brand, a tacit endorsement whether intended or not, precisely what the adviser and client take it to be.

The adviser’s duty, by contrast, sits at the individual file level: is this product right for this person, given their circumstances, objectives and what they can afford to lose? They are not even the same kind of duties. The trustee decides whether a product is sound at all; the adviser decides whether a “sound” product suits one particular person, and that question necessarily incorporates the trustee’s answer.

That the product is generally acceptable has supposedly already been decided by the trustee, with a research house rating on top, on a platform that has taken a large share of this chain’s value and might reasonably be assumed to have vetted the promoters it lets through.

Consider the adviser who recommended a Shield product to a client wanting property exposure and comfortable with development risk. On the evidence in front of them – a named platform, a licensed trustee, a rating from a leading research house – that recommendation was defensible.

I do not necessarily accept that was a failure at the file level, but a lot was: a recommendation built on a foundation that had already collapsed before the adviser ever saw it. That is entirely different from failing to notice the people running the scheme sat on both sides of the fence, related by ownership, directorships and commerce. That is where the adviser was blind. Not negligent, but blind.

Get the file-level question wrong and you hurt your own client; get the product-level question wrong and you hurt everybody who was ever going to be offered it. In the case of Shield and First Guardian, that was 11,000 people affected by one decision, made once. That is where the systemic risk in this industry sits: the only part of the chain that is not rated, not loaded, not excluded and not levied.

And so, $1.1 billion went into those funds. Behind a registered scheme, a responsible entity must hold five million dollars of capital, a figure that does not change with FUM: an entity running $10 billion holds the same five million dollars as one running $1.1 billion.

Not designed to compensate clients

In March this year, ASIC said plainly that “the financial requirements for responsible entities are not intended to address market or credit risks, or to prevent entities from becoming insolvent or failing. They are also not designed to compensate clients for unexpected losses”.

So the bill arrived at the link in the chain that received $11 million of the $741 million generated across the financial services chain.

Under current legislation, $20 million is the most the advice sector can be levied for the Compensation Scheme of Last Resort in a year; the estimate for the coming year is $190.3 million, against a professional indemnity pool for the entire industry, everything underwritten and reinsured, of only about $100 million.

Value in this chain accrues to whatever can be scaled. Liability accrues to whatever cannot.

What has to change

What all of this comes down to is that someone has to own the outcome.

But there is something else in it too. We tell the public we are going to fix it. We tell them there is a scheme, a regulator, a soft landing. What we have stopped telling them is to take an interest in their own affairs. People leave their rubbish in the park because they know the council will pick it up. If somebody else is going to clean up after you, you stop being careful.

So I am proposing four changes: two of them need Canberra, but two of them all advisers could start tomorrow.

1. Underwrite the chain, not just the firm.

Cover that attaches to the scheme, is sized to the scheme property, and survives the liquidation of the entity that caused the loss. Every compensation mechanism in this chain dies with the entity that caused the damage, and that single design fault is why the Compensation Scheme of Last Resort exists.

2. Price the gatekeepers in the middle, because that is where a bad product dies cheapest.

This is the one I would press hardest. Think about where Shield could have been stopped. Just one research house declining to rate it stops it reaching thousands of advisers. Just one platform trustee refusing to onboard it stops it reaching every adviser on that platform. Just one responsible entity asking where the money actually went stops it in its first year.

So rate them on what they let through. Make independent confirmation that the money went where the product disclosure statement said it would, an insured and audited condition of cover. A research house or a trustee whose own premium turns on the quality of what it waves past will look properly, and it will look before the damage is done.

3. Let AFCA join the whole chain to a complaint, and apportion between it.

The consumer complains about the adviser, because the adviser is the only person they ever meet. AFCA can only deal with its own members. And the courts will not apportion liability, either.

In 2015 the High Court held, in a case called Selig v Wealthsure, that proportionate liability applies only where a claim is confined to misleading conduct. Plead anything else for the same loss – negligence, breach of the best interests duty, breach of contract – and there is no apportionment at all.

A plaintiff simply adds a second cause of action and the whole regime disappears, which means the last solvent party carries 100 per cent of it. That party is the licensee.

Give AFCA the power to join every party in the chain and apportion between them on the facts, and make membership follow the chain so the parties who caused the loss are within its reach. That alone would cut the cost falling on advisers and put the pressure where the conduct was.

4. Close the fit-for-purpose gap.

If you buy a toaster in this country, it must be fit for purpose. That is a statutory guarantee and the manufacturer wears it. But if you buy a managed investment scheme there is no such guarantee, because financial products are carved out of Australian consumer law by section 131A of the Competition and Consumer Act. The mirror provision in the ASIC Act covers services rather than products and excuses the supplier where it would be unreasonable for the consumer to rely on their judgment.

If a fee is taken for a product that was never fit for purpose, that ought to be a consumer law problem for the people who built it and waved it through, not a best interest’s problem for the last person to touch it.

Until all of these issues are properly dealt with, we will still be here in five years’ time talking about the same thing: all that will have changed is the name of the product.

Scott Heathwood is chair of the Institute of Financial Professionals Australia (IFPA). This is an edited version of an address by Heathwood to the Australasian Professional Indemnity Group national conference in Sydney on 10 September 2026.