The liquidator for Australia's most infamous dodgy investment scheme, First Guardian Master Trust, has confirmed what most people invested in it already knew: they probably aren't going to get much of their money back, if anything.
Many of the people who invested in this, and two other recently collapsed schemes – Shield Master Fund and Australian Fiduciaries – are everyday Australians who put their super in based on the recommendation of a financial adviser they thought they could trust. Now they've lost their life savings, and those approaching retirement are facing the grim reality of working another ten or fifteen years – time that some members simply don't have.
How could this happen?
As the liquidator works through the rat king of conflicted business interests and unjustified payments (including the Lamborghini that was inexplicably bought with money from the investment fund), many Australians are wondering: how could this happen?
Most working Australians now contribute 12% of their earnings to their super fund and they are rightly asking, isn't super meant to be safe? We've certainly heard this question from the victims who contacted us at Super Consumers in the last few weeks.
This is a massive gap the federal government needs to plug if they are serious about protecting the retirement savings of Australians
To be fair, most super fund products are safe. There are far more protections on investments labeled as 'MySuper'. MySuper products have to be designed to meet the needs of most members of a super fund and are performance-tested annually by a regulator. If they fail the performance test once, they have to let you know, which is a big red flag and you should consider whether to stay.
If they fail a second time, they aren't allowed to take on new members until they can solve the problem, usually by merging with a better fund. But there is no need to wait around – you can vote with your feet.
While some investment options are independently tested by the regulator, sadly First Guardian and other products, which aren't designed by super funds, typically aren't tested. Investment options designed for retirees are also not tested. This is a massive gap the federal government needs to plug if they are serious about protecting the retirement savings of Australians.
Like a supermarket selling off milk
The First Guardian scheme was offered by four super funds via investment platforms that let you or your adviser make your own investment mix, like you might see on a share-trading platform. Like a supermarket, funds still choose what's on the shelves, but you decide what you want to buy - and there's lots to choose from.
Most platforms require you to have a financial adviser before they let you open an account and then they rely on the financial adviser to decide what's good for you to invest in. If you invest in a dud, the super fund and the investment scheme say, well that's the financial adviser's (and ultimately your) problem.
That makes about as much sense as the supermarket relying on my dietician to tell me whether the milk in the supermarket has gone off. Why did those super funds decide to put expired milk on their shelves?
Australia does have a compensation scheme for situations like this, but it will only cover up to $150,000 of a person's lost retirement savings
It's a good question and one Sarah Court, Deputy Commissioner of the Australian Securities Investments Commission (ASIC), one of the regulators, says ASIC has been asking itself as it questions whether the super funds involved acted in the best interests of their members.
The Australian Financial Complaints Authority does have the power to compensate financial advice clients for bad or illegal advice. The problem is that as ASIC is shutting down these rogue advice businesses, they are going into liquidation, meaning they aren't likely to have the money to pay up.
Australia does have a compensation scheme for situations like this, but it will only cover up to $150,000 of a person's lost retirement savings. For older people who invested their life savings, $150,000 isn't going to cut it.
Our Super Consumers retirement standard suggests the typical single person who owns their own home and is about to retire needs a little more than double that to maintain their living standard in retirement ($310,000).
How to protect yourself from poor financial advice
There's still a lot of work to be done to clean up this epic spill in aisle five. It'll be years before ASIC and the liquidators get it all sorted. The federal government and Assistant Treasurer Dr Daniel Mulino need to look at what can be done to stop letting super funds sell hard-working Australians rotten nest eggs.
In the meantime, here are some steps you can take to protect yourself and your family.
- Keep scrolling past the social media advertisements offering to compare your super. Hang up on cold callers.
- Check the Financial Advisers Register to see if an adviser is licensed and qualified to provide advice.
- Don't be afraid to ask for a second opinion before switching your super or making other big financial decisions.
- Use the ATO super comparison tool to compare products. It tells you about fees, performance and whether the product passed the independent performance test.
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Stock images: Getty, unless otherwise stated.
