Investors Seek Remediation Following First Guardian and Shield Investment Losses
Thousands of investors face significant losses after their retirement savings were funneled into the now-defunct First Guardian and Shield managed investment schemes. Fortunately, these investors may have avenues for remediation through the superannuation trustees managing the platforms that held their investments.
ASIC Investigates Investment Scheme Failures
The Australian Securities and Investments Commission (ASIC) is currently investigating the failures of the First Guardian Master Fund and the Shield Master Fund, which have left investors collectively staring at losses exceeding $1 billion. Although initial media focus has primarily spotlighted “lead generators” who guided individuals toward licensed financial advisors, attention is now shifting towards the role of superannuation platforms.
These platforms—overseen by superannuation trustees—are critical players as they authorized the inclusion of First Guardian and Shield within their investment offerings. Notably, companies like Equity Trustees, Macquarie, Netwealth, and Diversa were responsible for green-lighting these schemes, which have now caused turmoil for their investors.
Legal Action Against Equity Trustees
In a significant development, ASIC has filed a lawsuit against Equity Trustees Superannuation due to its alleged involvement in the loss of $160 million from the Shield Master Fund. This lawsuit underscores the responsibilities and potential liabilities of superannuation trustees in safeguarding member investments.
Understanding the Operational Risk Financial Reserve (ORFR)
A crucial aspect for investors to note is the Operational Risk Financial Requirement (ORFR). Since 2013, superannuation funds regulated by the Australian Prudential Regulation Authority (APRA) have been mandated to maintain an ORFR reserve. This financial safety net is designed to shield members from operational risks, which may include governance failures or investment mismanagement.
Sequoia, an ASX-listed firm under scrutiny for its links to these investment failures through its subsidiary InterPrac, has recently informed investors that they may be eligible for remediation through the ORFR. However, it remains ambiguous whether superannuation trustees can utilize these reserves to facilitate customer remediation.
Who Might Be Eligible for Compensation?
Most of the affected individuals had their retirement savings managed through licensed financial advisors working with these superannuation platforms. However, some investors utilized self-managed superannuation funds, disqualifying them from receiving compensation through the ORFR.
Additionally, around 6,000 investors linked to First Guardian have been informed by liquidators that there may not be enough funds to repay their investments, further complicating matters.
Seeking Recourse Through the Compensation Scheme of Last Resort (CSLR)
Investors adversely affected by the First Guardian and Shield schemes can seek recourse via the Compensation Scheme of Last Resort (CSLR). This scheme is designed for victims of financial misconduct when the responsible firm has ceased operations or cannot meet its obligations following a decision from the Australian Financial Complaints Authority.
While the CSLR offers a maximum payout of $150,000 per consumer, funding comes from an industry levy on financial advisers. In recent years, this levy has substantially increased, reflecting the rising number of claims.
Sarah Abood, CEO of the Financial Advice Association Australia (FAAA), has raised concerns regarding the sustainability and fairness of this funding model, noting that managed investment schemes remain notably excluded from the CSLR’s coverage, leaving many without adequate recourse.
Conclusion: The Path Ahead
As the investigation into First Guardian and Shield continues, affected investors must stay informed regarding their options for remediation. With potential avenues like the ORFR and CSLR, there remains hope for those grappling with the fallout from these investment failures.
Overall, it is crucial for investors to consult legal and financial experts to navigate this complex landscape, ensuring they understand their rights and avenues for recourse. By staying proactive, investors can work toward recovering their losses and protecting their financial future.
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