Dear Friends
How safe is our super?
This is the question most commonly raised following the recent collapse of Shield and First Guardian managed investment schemes.
The answer is the safety provided by three significant layers of protection:
- As Marinis Financial Group clients, you are protected by our significant level of professional indemnity insurance arising from any negligence or misconduct within our organisation. You are also protected by our investment governance procedures which would not allow the recommendation of products of the nature of First Guardian or Shield. The product disclosure statements (PDS) of both funds contained glaring contradictions and unrealistic promises. Shield pitched itself as a balanced fund, but targeted returns of inflation plus 8 per cent; an ambition more in line with a hedge fund than superannuation. First Guardian promised diversification while relying heavily on illiquid property assets.
- The second protection is the very powerful motivation driven by the ‘brand’ protection of the investment platform managers. We recently saw Macquarie reach an agreement with industry regulator ASIC to compensate Shield investors for collective losses of $320m – arising from due diligence in the oversight of products available on their platform. Macquarie has no exposure to First Guardian.
- The third protection is a little-known regulation under the Superannuation Industry Act (SIS) which currently enables the trustee of a superannuation fund or approved deposit fund regulated by APRA to apply for financial assistance under Part 23 of the Act. Essentially this regulation allows the Federal Government to provide financial assistance (funded through an associated superannuation industry levy process) for eligible superannuation losses arising from fraudulent conduct or theft.
According to media reports, Netwealth, Diversa and Equity Trustees have applied, or are preparing to apply, to the Federal Superannuation Minister Daniel Mulino requesting hundreds of millions of dollars of this support under Part 23 of the SIS Act. It may well be that the Minister will point to the Macquarie example and rule that the trustees of these superannuation platforms make their own compensation – but no adjudication has yet been made in this regard.
The way forward for Shield and First Guardian investors
At the end of the day, there is provision for relief for First Guardian and Shield investors who will be compensated for their financial loss.
In the interim, however, with the ongoing investigation by ASIC of all links in the chain that led to the fund collapses (including but not limited to the super trustees, the licensee and its advisers, as well as the funds themselves), there will be high profile court cases. We should expect criminal proceedings with all of the resulting media exposure, and a lot of very angry people.
The way forward for all participants
It is my view that one way to remove the potential for criminal activity in the financial advice industry is for a marked increase in the severity of penalties, including serious prison time.
The failure of Shield and First Guardian also highlights an overarching need for rigorous examination of the governance processes of the gatekeepers and regulators in our investment disclosure environment.
For investors there is also a take away. If an investment return sounds too good to be true, it is too good to be true. With high returns comes additional risk, with further risk in having ‘all of your eggs in one basket’ or invested via one investment product where the underlying investments are opaque. As a potential investor, also beware of cold calls from ‘lead generators’ offering to compare your superannuation; this is an illegal practice. Seek a referral from someone you trust, and get professional advice.
Please click here to read my media release ‘How Safe is Super’ – written four years ago, it remains germane in the current circumstances.
Scams – be sensible, slow and considered
In the meantime, the risk of scams in personal situations is increasingly prevalent, and it is these scams which worry me most.
Most of our readers will be aware that I have been reminding everyone for over a year about the risks – and that having Marinis staff as ‘business friends’ gives you an additional layer of security. We know you, and we will question unexpected requests that could be part of a scam.
Please protect your investment information. Don’t leave financial statements or bank account details around – or in your rubbish (much better to shred them). And please do not email such documents, your TFNs or your photo IDs.
Always be wary of the telephone call purporting to be from ‘The Bank’, ‘The Tax Office’ or the ‘The Government’ needing control of your computer to stop someone stealing your money. Get the caller’s details and call back on a number you have found from an old document, not the first number you find on the Internet. Don’t be panicked into a bad decision. You may not get stolen money back.
Check the address of the emails you receive, and unless it is from a known and trusted source, for example grow@marinisgroup.com.au, do not click on any links or attachments in the email.
Never invest via social media, as I always say, this is just handing money to thieves.
In conclusion
We have a very safe superannuation system whereby the Government can provide relief for financial losses arising from fraudulent conduct or theft if corporations can’t.
The best protection against scams is our own sensible, slow and considered approach to unsolicited approaches.
As always, if I or any of our team can be of assistance, please don’t hesitate to get in touch by either calling (08) 8130 5130 or email admin@marinisgroup.com.au
Yours sincerely
Theo Marinis CFP®, B.A., B.Ec., CPA., MCIFAA
Financial Strategist
Authorised Representative
