How can you tell?
Is your super safe from high profile collapses?
There are three simple words which are guaranteed to unsettle almost any retiree: SUPER FUNDS COLLAPSE. Such failures are very topical right now, in the wake of the recent collapses of the First Guardian and Shield Master Funds. These are examples of managed investments held within super funds – high profile liquidations involving more than 10,000 individuals’ life savings, so there is certainly cause for concern. But how widespread or likely are such financial failures – and should you be worried?
Once again, the answer is yes – and no. There are some clear misdemeanours involved and some warning signs to consider to ensure you don’t lose your super to dodgy operators. Today Retirement Essentials Head Of Advice, David Kennedy lends his many years of experience to take the heat out of the debate and help you make sense of what just happened – and how avoidable it really might be.
Which funds went into administration?
The Australia Securities and Investment corporation (ASIC) froze the assets of the Shield Master Fund in June 2024 and the First Guardian Master Fund in February this year. Both entities were placed in receivership by the Federal Court in April. Estimates of the amounts involved are $590 million across 6000 individual holdings in First Guardian and $480 million held by 5800 investors in The Shield Master Fund. Directors of these companies have had their passports withdrawn, their assets frozen and interim travel orders invoked.
Sadly this may be too late for the retirees and savers who had money in these companies. Countless investors report having lost super balances well over $100,000, so that magnitude of loss will be difficult to overcome.
How did it get to this?
It started when investors received unsolicited phone calls from telemarketing companies engaged by financial advice firm Venture Egg, encouraging them to switch super funds on the promise of higher returns. The call staff have been described as aggressive and pushy and managed to convince some super account holders to set up meetings with financial advisers at Venture Egg who then recommended investors transfer their savings from relatively low-cost, well-performing super funds to a range of super ‘platforms’ such as Netwealth, Macquarie and Equity Trustees. Investor money was then allocated to questionable investment options within those super platforms including the First Guardian Master Fund and Shield Master Fund, both of which later collapsed, with multiple parties now under investigation. ASIC indicates investors were encouraged to invest their super in higher-risk products that were not necessarily in their best interests.
These companies are claimed to have mismanaged funds, using them for overseas investments, a director’s mortgage repayment and other questionable purposes. Some of the investors claim the move from their previous super fund to the other platforms and investment options was done without their knowledge or permission.
It sounds like a scam – how does it actually work?
The ‘playbook’ for the sequence of events that leads to the questionable financial advice causing such devastating losses typically involves the following:
- Unsolicited phone call out of the blue from a telemarketer preying on an investor’s fear of running out of money or of not having enough super to retire in the first place.
- A sales pitch suggesting no matter where a person’s super currently sits, that switching to a new super fund is the only way to guarantee a comfortable retirement via higher returns.
- Provision of incomplete historical return figures with convenient start and end dates.
- High pressure sales tactics designed to create a false sense of urgency to make a quick decision on a large sum of money.
- No discussion of retirement goals or needs or risks involved in switching super funds.
- Referral to a financial adviser (Venture Egg in this case – since under ASIC investigation) who recommends super is transferred unnecessarily against the investor’s best interests.
Will these investors get their money back?
Probably not all of it though it will depend on how much each individual has lost, what is able to be recovered by liquidators, and whether compensation may be available through avenues like the Australian Financial Complaints Authority and the Compensation Scheme of Last Resort. Liquidators have been appointed to the managed investment schemes involved, but it is feared a substantial amount of money will not be recovered.
Should the government (i.e. ASIC) have acted faster?
It may have taken ASIC some time to respond, but it can only respond to complaints and many investors simply did not know their money had been misused until their accounts were locked and assets frozen.
Who is at fault here?
It appears there has been wrongdoing on many levels. The director of the telemarketing companies engaged by Venture Egg to make cold calls enticing unsuspecting investors to switch super funds is under investigation and those companies are now in liquidation. The advisory firm Venture Egg and its advisers are the subject of an ASIC investigation based on providing inappropriate super switching advice that was not in the best interests of their clients. Meanwhile the directors and entities of the First Guardian and Shield Master Funds have had their assets frozen with various travel bans enforced. Lastly, ASIC is also investigating the super platforms on which these investment options were offered including Netwealth, Macquarie and Equity Trustees.
Is this likely to happen again?
Financial mismanagement and fraud are as old as time. To put this situation in context, approximately 17 million Australians hold super in accounts that total more than $4 trillion. Unfortunately the sheer size of Australia’s superannuation pot will always attract fraudsters. While the loss of around $1 billion is only a fraction of total money invested in super, , that is of little comfort to people who have lost amounts of $100,000, $300,000, $500,000 and more, whose retirement plans will now heavily depend on what the liquidators can locate and redistribute.
How could it have been prevented?
While there are avenues affected investors can explore to seek compensation in these cases such as The Australian Financial Complaints Authority and the Compensation Scheme of Last Report (CSLR), prevention is always better than relying on a cure. Be on the lookout for these warning signs and red flags to make it less likely you will fall victim to a similar scheme:
- Unsolicited telemarketing calls about your super or other investments – if someone unknown to you phones and suggests you make changes to your super, take their details and hang up.
- Aggressive sales tactics or pressure to make a hasty decision about your super – you have spent decades working to build your super balance, and there is no reason to hurry into rash decisions about making changes.
- Suggestions you should switch super funds with no clear reason given as to the benefits to you – While ‘higher returns’ is often used as a sales tactic, remember if it sounds too good to be true, it usually is. Bear in mind also that government legislation has resulted in much less variability in fees and performance across major super funds over time. Returns are primarily a result of your asset mix, and making adjustments to the investment option within your existing super fund
- Poor explanations of the fees, costs and risks of switching super funds – lack of detailed paperwork explaining the reasons switching super funds is in your best interests. A licensed adviser must provide you with a Statement of Advice clearly explaining how and why the advice to transfer you super is in your best interests and places you in a better position. This should include all
- Advice that is not personalised – be wary of guidance doesn’t take into account your needs, goals and specific circumstances and is just focused on selling a super or investment product.
One of the entities involved in money transfers was the holder of an Australian Financial Services Licence (AFSL) which normally indicates compliance with industry requirements. But AFSLs have been revoked from time to time, so holding such a licence is not a guarantee of the security of your funds.
What can we learn?
Generally speaking, the Australian superannuation industry is considered world best practice, not just for the size of the savings pool, but also for the equity and governance which has allowed it to grow and serve members so well over the past 30-40 years. Our retirement savings system was considerably boosted by mandated superannuation in 1992 and super savings now ensure that most Australians will have bonus funding when they enter retirement, rather than being almost wholly reliant on an Age Pension as was previously the case.
But things can go wrong, as the First Guardian Master Fund– Venture Egg example so painfully reminds us.
That said, the Latin words, caveat emptor (buyer beware) are as true today as they were back in the days of Imperial Rome. You can also use this handy Money Smart checklist to ensure the credentials of the company which contacted you.
Another old saying – don’t put all your eggs in one basket – remains good advice. Moving all your super into a fund which you haven’t researched or heard of prior to today is extremely risky. Many retirees are chasing higher returns on their savings. But it’s critical to question high promised returns as often the only one getting richer is the person at the other end of the phone!
Trust is everything
Yes, there are a lot of sharks out there, but with due diligence, you should be able to avoid losing your savings. Retirement Essentials offers advice – manageable, bite-sized and relevant – and as is necessary, holds an Australian Financial Services Licence order to do so. What we do not do is recommend any products – ever. Instead, we answer your retirement questions, provide handy forecasts of your assets and income, and equip you with a plan to make the most of your money in retirement.
If you would like to discuss your super options with an experienced and trusted adviser, a Retirement Advice Consultation offers the chance to learn more, ask your most pressing questions and consider a range of investment options.
Have you ever been approached by a caller -out of the blue – who has a financial offer too good to refuse? If so, how did you handle this call?
