A law firm representing clients in AFCA complaints in the Shield and First Guardian master fund collapses has pointed to gaps in the jurisdictional coverage of the dispute resolution service that could see clients miss out on hundreds of thousands of dollars in compensation.
FD Legal has written to the external dispute resolution service to request a review and seek legislative approval to amend its jurisdiction to allow complaints against super trustees where it has permitted an investment product to be made available on its platform and where that decision has resulted in loss or detriment to members.
Consumers can make complaints against superannuation trustees, but the scope is limited to decisions directly made to a specific member.
The submission argues that the inclusion of trustees in these particular AFCA complaints would take some of the load of the Compensation Scheme of Last Resort.
“These trustees are large, well-funded entities unlikely to become insolvent; thus, whilst potentially responsible for customer’s losses, their conduct is not addressed within the AFCA dispute resolution process and falls outside the intended scope of the CSLR,” the submission said.
FD Legal is currently representing affected members in the $1.2 billion Shield and First Guardian collapse with their AFCA complaints.
Legal representation isn’t required to make a complaint, but the firm has taken on clients who still feel overwhelmed by the system and are often up against institutions with their own legal backing.
The submission also argued that removing ‘but for’ determinations from the CSLR would have negative outcomes for consumers, despite the scheme recommending doing so during a Treasury consultation into the sustainability of the service.
Instead, the submission argued the CSLR should be more proactive in recovering funds from those responsible.
The financial advice subsector of the CSLR is due to pay $67 million in FY26 with projections for FY27 set to double that.
Financial advisers can only be legally required to collectively cover $20 million which has meant Minister for Financial Services Daniel Mulino will have to raise a special levy to cover the shortfall.
The FD Legal submission, which has been seen by AFCA, was sent chief ombudsman David Locke and executive general manager jurisdiction Michelle Kumarich. The submission was also sent to the minister.
ASIC commenced investigations into Shield and First Guardian over concerns about the structure of the products and misuse of member money, but the regulator was further concerned about use of lead generators that applied high-pressure sales tactics to get clients into the funds via advisers who rolled members over into the now collapsed funds without factoring in their best interests.
The regulator has alleged advice firms received payment from the funds to pay for the lead generation and marketing services.
AFCA determinations in favour of clients are expected to head to the CSLR as all but one licensee known to be involved in the collapse of the Shield and First Guardian funds have had their licenses cancelled.
The remaining licensee is InterPrac Financial Planning, which is owned by ASX-listed Sequoia Financial Group.
The group has disputed reports it will move InterPrac into voluntary administration to avoid paying any liabilities.
