The corporate regulator has launched civil proceedings against Equity Trustees over its inclusion of the Shield Master Fund on super platforms it hosted, but other trustees could also be in the firing line.
On Tuesday morning, the Australian Securities and Investments Commission (ASIC) announced it had commenced civil penalty proceedings in the Federal Court against Equity Trustees Superannuation Limited, alleging it failed in its due diligence requirements over the inclusion of the Shield Master Fund on its platform.
“Instead of acting as an effective gatekeeper for its members’ retirement savings, ASIC alleges Equity Trustees allowed thousands of members to invest in Shield which had no track record. Those members ultimately saw their super balances eroded,” ASIC deputy chair Sarah Court said on Tuesday.
“Superannuation trustees play a critical role helping people save for their retirement. We expect them to do so with care and skill and put the interests of their members first.
“This action should send a clear message to superannuation trustees: proper due diligence is needed when offering investment options for members.”
In the filing, ASIC alleged that Equity Trustees failed in relation to Shield:
To exercise the same degree of care, skill and diligence as a prudent superannuation trustee would.
To act in the best financial interests of its members.
To do all things necessary to ensure the financial services covered by its Australian Financial Services Licence were provided efficiently, honestly and fairly.
“This is the first action against a superannuation trustee in relation to this complex set of investigations and we expect more cases to come,” Court said.
“Our first priority has been preserving assets for the benefit of investors, but the next phase will be holding key players to account.”
According to ASIC, Equity Trustees, as trustee for the AMG Superannuation Fund and Super Simplifier, approved the four classes of Shield as investment options on the NQ Super and Super Simplifier platforms.
Equity Trustees’ parent company, EQT Holdings Limited, quickly responded in an ASX announcement, saying it is “considering ASIC’s claim carefully and will respond on the substance of the claim in due course”.
While the lawsuit is undoubtedly a concern for Equity Trustees, the ramifications are more wide-ranging than this single super fund trustee – even if it did oversee the investment of, according to ASIC, “around $160 million of retirement savings into Shield over 2023 and 2024 through its fund”.
The real takeaway is that ASIC is making good on the grenades it lobbed at the start of July and is actually going beyond the low-hanging fruit of advice failures.
At the time, Court explained that the regulator’s investigations are looking at the entire chain, including conduct of the lead generators, the financial advisers, the superannuation platforms, “who we think have a real role here”, and the research houses that “listed these funds as investable”.
The Equity Trustees case is, for the moment, limited to its inclusion of the Shield Master Fund on super platforms it hosted, however, it also included the First Guardian Master Fund as an option.
While First Guardian and Shield were not under the same management, there are a number of similarities in the conduct that drove investment into the funds – as well as the involvement of a handful of financial advice firms.
The long and short of it, as far as the investigations have led so far, is that superannuation comparison services utilised a raft of high-pressure sales tactics to funnel unsuspecting Australians into these advice firms, which subsequently advised the clients to roll their super into a self-managed super fund or super platform and invest the vast majority of their assets into Shield or First Guardian.
Warning for other trustees
Equity Trustees was not alone in hosting the funds on its platforms, with three other super trustees named on the ASIC website – Macquarie Investment Management for Shield and Diversa Trustees Limited and Netwealth Superannuation Services Pty Ltd for First Guardian.
As Shield went under first, and Court directly named Macquarie in earlier statements, it would be the logical next cab off the rank.
There is no way to tell at this point whether it had the same due diligence failures that ASIC has alleged of Equity Trustees, however, the regulator’s willingness to sue a trustee at what is still a relatively early stage in the process should give all three cause for concern.
Unsurprisingly, given the potential legal ramifications, no trustees responded to InvestorDaily’s request for comment at the time of publication and ASIC did not expand on the details of any other forthcoming action.
Another potential avenue for action against the trustees is through member complaints to the Australian Financial Complaints Authority.
The specific lens through which an impacted member would argue the trustees were liable for a portion of their losses is not entirely clear, however, they would likely rely on similar arguments as those ASIC has made against Equity Trustees.
