After a brief hiatus, our weekly briefing returns to a fortnight packed with significant developments that will reverberate through the profession for months to come. The long shadow of the Shield Master Fund and First Guardian collapse continues to spread, triggering intense regulatory scrutiny, licensee action, and difficult conversations across the industry. This was coupled with a torrent of enforcement actions from ASIC and a landmark decision by the Reserve Bank to cut the cash rate, reshaping the economic outlook. For advisers, navigating the fallout while adapting to these major shifts is now the central challenge.
Advisers, Advice Practices and Clients
The collapse of the Shield Master Fund and First Guardian continues to send shockwaves through the advice sector, with the financial and regulatory consequences becoming clearer. Licensee group Sequoia has disclosed that it is facing around $22 million in complaints related to the failed funds, highlighting the significant potential liabilities for firms. In response to the crisis, Interprac has been actively terminating its relationships with advice firms linked to the collapse and has established a dedicated team of salaried advisers to manage the affected clients. The direct regulatory impact is also being felt, with ASIC banning a former adviser connected to a firm that advised clients into Shield for four years.
Away from the immediate crisis, the broader health of the advice profession shows tentative signs of improvement. Adviser numbers have continued their slow recovery after the usual end-of-financial-year dip, with new entrants helping to bolster the ranks. This growth is occurring in a market where the cost and value of advice are rising sharply. New data from Adviser Ratings (ARdata) shows that median ongoing advice fees have jumped 18 per cent to $4,668, significantly outpacing inflation. The data also reveals that advisers are servicing more clients on average, with higher funds under advice.
This increasing value is reflected in practice valuations, though research from Colonial First State (CFS) suggests a potential "value gap" of up to $1.1 million between what advisers think their business is worth and what they have formally valued it at. Key person dependency was identified as a major factor limiting sale prices.
Consolidation and strategic repositioning continue to shape the licensee market. In a significant move, Insignia has offloaded its self-licensed offering, IOOF Alliances, to the newly rebranded licensee services business, Entireti. This comes as the number of solo-adviser AFSLs continues to grow, and larger AFSLs experience significant growth amid market consolidation. WT Financial has also been active, announcing its second HubCo joint venture and another deal through its joint venture with wealth manager AWAG.
On the professional standards front, the Financial Advice Association Australia (FAAA) has expanded its approved specialisations program to include new areas like aged care and small business advice. This move aims to help advisers demonstrate deeper expertise in complex areas, which is becoming increasingly critical for servicing high-net-worth clients and navigating the complexities of generational wealth transfer.
The Regulatory Environment
The regulatory response to the collapse of Shield and First Guardian is gathering pace, with Assistant Treasurer Daniel Mulino indicating the government is considering "additional regulatory guardrails" to prevent a repeat of such failures. Mulino acknowledged the crisis will not deter the government from pushing ahead with its Delivering Better Financial Outcomes (DBFO) reforms, which he described as "time-sensitive and important". The collapse has also amplified industry calls for a comprehensive review of the Compensation Scheme of Last Resort (CSLR). The SMSF Association has backed a review of the special levy, while other bodies have warned that without changes to its funding model, the CSLR could risk collapse. The FAAA has argued that an unchecked CSLR will "bankrupt everybody".
ASIC has been particularly active over the past fortnight, launching several major legal and enforcement actions. In a significant move, the regulator commenced legal proceedings against Mercer Super, alleging systemic failures in its reporting of member services investigations, including those related to deceased members. This action underscores a broader regulatory focus on operational resilience and member outcomes.
ASIC's enforcement agenda also saw NAB and its superannuation trustee, AFSH, penalised $15.5 million for failures in supporting customers facing financial hardship. On the advice front, the Administrative Appeals Tribunal upheld ASIC's 10-year ban against United Global Capital director Joel Hewish, a key figure in the UGC and Shield matters. The regulator also took action against 28 SMSF auditors for compliance failures in the last financial year.
Beyond enforcement, regulators are signalling a tougher stance on compliance culture. In a joint statement, senior executives from ASIC and APRA rejected a "computer says no" approach to compliance, urging boards to take greater responsibility and move beyond a purely defensive mindset. ASIC is also turning its attention to direct life insurance sales channels, flagging a review to ensure sales practices and remuneration structures are not leading to poor consumer outcomes.
Meanwhile, the debate over adviser education and entry standards continues. The Productivity Commission suggested that "excessive" entry requirements for advisers should be removed, a view echoed by CPA Australia, which labelled the current standards "disproportionate to the level of risk".
The Economy, Investments & Platforms
The major economic news was the Reserve Bank of Australia's decision to cut the official cash rate by 25 basis points. The move, which economists widely anticipated, was welcomed by Treasurer Jim Chalmers as relief for households. Following the cut, market watchers are now debating the timing and pace of future moves, with the RBA Governor noting that productivity woes remain a key drag on growth.
The collapse of The Shield and First Guardian has put the role of investment platforms and research houses under the microscope. HUB24 revealed in its financial results that it had declined to host the failed funds on its platform due to due diligence concerns. The platform reported another year of strong growth, with underlying net profit after tax up 44 per cent to nearly $100 million and record inflows. Elsewhere in the platform and technology space, Iress confirmed it is in discussions regarding a potential takeover after its core earnings rose, and appointed a new Chief AI Officer to drive innovation.
In funds management, the trend towards private markets and alternative assets continues to build. BetaShares has launched a new private capital division to target advisers and their clients, partnering with US manager Cliffwater. Colonial First State has also made its first move into private equity, partnering with J.P. Morgan Asset Management. However, regulators and industry experts are sounding notes of caution. ASIC is preparing to review the fast-growing private credit sector, while one Chief Investment Officer has warned super funds about the dangers of mischaracterising private credit as simple debt.
The reporting season has been in full swing. AMP reported a drop in net profit due to litigation costs, though its North platform continues to grow. Commonwealth Bank posted a record profit of $10.25 billion and flagged AI as a major future investment focus, but also set aside $52 million for remediation.
The Superannuation & Retirement Landscape
Improving retirement outcomes for members remains the dominant theme in superannuation, with Treasury releasing a consultation paper on reforms for the retirement phase. The reforms aim to increase transparency and standardisation to help retirees navigate their options. The consultation was accompanied by a sharp warning from ASIC and APRA, who declared there are "leaders and laggards" among super funds in implementing the Retirement Income Covenant. In a joint speech, the regulators called out the slow progress and lack of ambition from some funds, putting the industry on notice that performance will be closely monitored.
The Financial Services Council (FSC) has cautioned against a "one-size-fits-all" approach to retirement policy, arguing that individual outcomes must be the priority. This comes as Australian Retirement Trust (ART) is pushing for a "soft default" retirement product to be considered at the government's Economic Reform Roundtable.
Meanwhile, the industry continues its campaign against the proposed Division 296 tax on superannuation balances over $3 million. Industry bodies argue the tax is flawed, retrospective, and will create significant administrative burdens. Some commentators maintain it is "not too late" for the government to change course on the controversial measure.
ASIC's lawsuit against Mercer Super for alleged systemic reporting failures has sent a clear message to all funds about the importance of robust internal processes and meeting regulatory obligations. The regulator has also launched a review of how super funds invest in residential property, seeking to understand how disclosure rules under RG97 could be amended to help unlock capital for housing supply.
In other sector news, Australian Retirement Trust announced its founding chair, Andrew Fraser, will retire from the board next year. HESTA has renewed its insurance partnership with AIA and announced a reduction in insurance fees for members.
Life Insurance & Client Protection
The life insurance industry is strongly advocating for greater government focus on Australia's mental health crisis. The Council of Australian Life Insurers (CALI) has backed calls for immediate action, highlighting the profound impact on community wellbeing and the national economy. The industry's position is supported by data from major insurers like TAL, which reported that mental health claims reached 21 per cent of all new claims.
Regulators are increasing their focus on sales practices, with ASIC announcing a review of direct life insurance sales to ensure remuneration structures and conduct are aligned with consumer interests. The review signals a potential crackdown on practices that could lead to poor outcomes, particularly for vulnerable customers.
On the product and technology front, NEOS Life has launched a new tool to help advisers compare policy features and definitions across different providers. In technology partnerships, underwriting platform UnderwriteMe has formed a data partnership with Acenda, aiming to create a more streamlined, end-to-end digital insurance solution.
There was also qualified support from the industry for a ban on the use of genetic test results in underwriting, a long-debated topic that balances privacy concerns with insurer risk assessment.
In the Background: Key Adviser & Licensee Movements
The past two weeks saw a flurry of corporate activity and appointments. The most notable transaction was Entireti's acquisition of Insignia's IOOF Alliances business, a move that repositions the firm as a significant service provider to self-licensed practices. WT Financial also continued its expansion strategy, confirming new joint ventures under its HubCo model and through its partnership with AWAG. AMP's North platform announced a senior appointment aimed at driving adviser growth, and AMP itself appointed former Commonwealth Superannuation Corporation chief investment officer Linda Elkins to its board.
Key Takeaways for Your Practice
- Review Client Portfolios and Platforms: The Shield/First Guardian collapse is a stark reminder of the risks associated with non-platform and unlisted assets. It may be prudent to review client exposures and the due diligence processes of your recommended platforms. HUB24's decision to reject the funds serves as a case study in platform governance.
- Prepare for CSLR and PI Discussions: The debate around the CSLR levy is intensifying. Advisers should anticipate that the costs of the scheme will remain a significant business expense and a hot-button issue for the profession. The ongoing regulatory focus on Professional Indemnity insurance deficiencies also warrants attention.
- Communicate the RBA Rate Cut's Impact: The first rate cut in a new easing cycle provides a valuable opportunity to engage with clients. Discuss what it means for their mortgages, cash investments, and the broader outlook for equity and bond markets.
- Engage with Retirement Income Reforms: The regulatory focus on the Retirement Income Covenant is not going away. Understand your clients' needs in retirement and review how your advice proposition helps them meet the objectives laid out by Treasury and the regulators.
Factor Rising Mental Health Claims into Protection Advice: The high proportion of mental health claims highlights the critical importance of income protection and TPD cover. This data can be a powerful tool for demonstrating the value of insurance to clients.
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