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Financial Services Complaints Regime – Not Fit for Purpose
Phil Anderson | GM Policy, Advocacy & Standards, FAAA
Thursday 2 October, 2025
The Shield Masterfund and First Guardian collapses have had hugely negative consequences for over 11,000 clients who are potentially exposed to combined losses of up to $1.1 billion. For many of these clients, the losses are in the hundreds of thousands of dollars and particularly for people in retirement or approaching retirement, this is devastating. There are some important immediate changes that can be made to the client complaint regime to help ensure fairer recourse for these impacted clients.
The failures in the financial services system have been substantial and extend across the value chain, including the following:
- The responsible entities and fund managers who built these products and managed them.
- The research houses who assessed and rated these products.
- The superannuation funds, who agreed to add these products to their investment menus.
- The advice licensees who added these products to their Approved Product Lists thereby giving permission to their advisers to recommend these products, while also operating with limited adviser oversight.
- The advisers who recommended to clients to invest in these products and evidently in some cases moved client money without ‘positive’ consent.
- The telemarketers and cold calling companies who identified potential clients and convinced them to take action.
- The auditors who it seems failed to call out the warning signs and likely misconduct within these firms in a timely manner.
ASIC have made it very clear, including during a presentation to the Parliamentary Joint Committee on Corporations and Financial Services on 18 September 2025, that all of the above sectors are in the spotlight and are likely to be the subject of regulatory action and potentially contribute to client remediation.
That is important, as those who have done the wrong thing need to be held to account.
The bigger issue is what can be done to compensate these impacted clients now and seek to put them back into the position that they would have been in had this not occurred. Macquarie have taken the lead, in agreeing to compensate their clients who invested in Shield. This is a great step forward, however this response may not be replicated by others who may be implicated. Other than already announced settlements, the resolution of these matters is uncertain and that is where we run into trouble and where it is clear that the financial services complaints regime has some deep flaws. These flaws result in impacted clients being encouraged to direct their complaints against financial advisers only. This option should always be available to clients when adviser wrongdoing is evident, however the system must provide clients with the right to complain with respect to other providers in the value chain that were involved in this failure. In fact, the complaints regime should treat the Compensation Scheme of Last Resort (CSLR) as the last resort and prioritise resolution through other means.
Importantly, if chasing a claim against a liquidated financial advice firm is the only option, then it leaves clients in a position where their compensation is likely to end up coming from the CSLR, which is subject to a cap of $150,000, resulting in many of these clients being substantially out of pocket. It also ignores the role of other providers who should be acting as gatekeepers for clients.
The compensation framework is a complex system which has much broader issues than we will discuss here. The focus in this short paper is on the urgent issues within the External Dispute Resolution (EDR) and complaints system that should be addressed in the short-term to help these impacted clients. Many of our other concerns require longer-term fixes.
Australian Financial Complaints Authority
Retail consumers of financial services products and services in Australia have access to the Australian Financial Complaints Authority (AFCA) if they believe that their product/service provider has done the wrong thing. Complaints to AFCA are free, reviewed by an independent body and the determinations are binding on the financial firm. This is a good system for clients, however there are some critical limitations/flaws that impact clients’ access to compensation through the EDR scheme:
- AFCA can only accept complaints against firms who are members of AFCA. Whilst financial advice licensees, Responsible Entities and super funds are members of AFCA, research houses and auditors are not.
- AFCA cannot accept complaints against the actions or conduct of professional indemnity (PI) insurers who are insuring financial firms that are members of AFCA or join them to a claim.
- AFCA is only an option for retail clients. Clients who legitimately meet the criteria to be classified as wholesale, do not have access to AFCA.
- Where there is a level of joint responsibility for loss between multiple financial services providers, AFCA cannot join a super fund to a complaint against a financial adviser. This forces clients to make two separate complaints, significantly increasing the effort and complexity for consumers.
- AFCA Rule C.1.5 excludes investment and superannuation complaints with respect to both:
– “the investment performance of a financial investment, other than a complaint concerning non-disclosure or misrepresentation” and
– “A complaint relating to the management of a fund or scheme as a whole”.
We are aware of complaints to AFCA against the super funds who included Shield and First Guardian on their investment menus that have been rejected on the basis of AFCA Rule C.1.5. AFCA have determined that these complaints do not fall within their jurisdiction as the investment performance of Shield and First Guardian are excluded; and super funds’ decision to list these investments on their platforms relate to the management of the fund as a whole. Such decisions are clearly very concerning for these clients. We have also seen decisions that have highlighted that complaints could not be considered as the amount of loss cannot be calculated due to uncertainty about the level of recovery through the liquidation of these schemes. This limitation has not been applied when it comes to advice related complaints, which have already received an AFCA determination and progressed to the CSLR.
AFCA have published a webpage on Shield and First Guardian and how AFCA can help, along with a webpage on What can I complain about, that states “AFCA has limited jurisdiction in relation to complaints about superannuation funds. We cannot consider complaints about the management of the fund or scheme as a whole”.
We believe this is not the intent of the consumer compensation system or the principles of external dispute resolution. These aspects of the AFCA Rules should be amended as a matter of urgency to assist the clients impacted by these failures.
Other options for compensation
There are other options to solve these complex matters:
Part 23 of the Superannuation Industry (Supervision) Act (SIS Act)
These provisions in the SIS Act enable a superannuation fund to apply, via APRA, to the Government for a grant of financial assistance where the fund has suffered a loss as a result of fraud or theft. The payment of a grant of this form is typically recovered via a levy across the entire superannuation sector. The decision to make a claim under Part 23 of the SIS Act sits with the super fund trustee, and it is unclear whether any of the funds involved in Shield and First Guardian will choose to take this action.
Operational Risk Financial Reserve (ORFR)
Implicated entities, such as super funds, may choose to offer compensation to clients to cover the losses their clients/members have experienced. Super funds are required to maintain an ORFR, which may in certain circumstances be used for the purpose of client remediation. Super fund compensation might also be a result of negotiations that they have had with ASIC. Evidently, based upon recent media reports, these negotiations have commenced, which is illustrated by the Macquarie outcome.
ASIC action
ASIC may also take legal action to seek client compensation. This type of action has already commenced, although ASIC have stated that in terms of action against the super fund trustees, the law has not previously been tested.
Class action
Clients could also seek to take legal action or commence a class action against parties who they feel are responsible for their loss. Taking individual legal action is very expensive and class actions are complex and costly. One leading class action law firm has announced that they are investigating a potential claim on behalf of investors in Shield and First Guardian. It is unclear how action against the research house or the auditors would be possible.
So where do clients stand now?
At this stage, other than with respect to the Macquarie action, there is a lot of uncertainty about the prospect for impacted clients to obtain compensation by non-AFCA related means and whether there is any ability to make a complaint against a super fund on these matters through AFCA. There is clearly no sensible and suitable mechanism to resolve these complex matters for the benefit of clients where multiple parties are involved. Evidently, at this stage, making complaints through AFCA is the best option, however this is very restricted in terms of superannuation complaints. All the messaging seems to point clients in the direction of making complaints against financial advisers, even though this will most likely result in the advice firms being put into liquidation and the matter ending up with the CSLR, with the application of a cap of $150,000 on any compensation.
This clearly illustrates a very substantial implication for those clients who have suffered large losses, particularly where those losses are much greater than the CSLR limit of $150,000.
What needs to change?
The Shield and First Guardian collapses highlight the need for reforms to the financial services complaints regime, including the following:
- For complex, multi-facetted matters like Shield and First Guardian, there needs to be a mechanism to negotiate a settlement across all of the contributing parties, in order to deliver a timely solution that does not simply rely upon the CSLR.
- Significant modification of AFCA Rule C.1.5 is essential to better allow complaints against investment funds and superannuation funds. Complaints about the operation of the fund, including with respect to the decision to include an unsuitable investment fund on an investment menu and failure to take sufficient action in the context of warning signs related to investment products and business practices, must be permitted.
- Changes to the law to allow complaints involving financial advice to attribute loss to other parties, even where there are breaches of the core advice obligations, such as the Best Interests Duty and the appropriate advice obligation.
We have broader recommendations about law reform and other changes that are necessary as a result of these matters, and to make the CSLR sustainable, however with clients in mind, there are some important changes that need to and should be made to the client complaint regime in the very short term to help ensure fairer recourse for impacted clients. In the context of the devastating consequences that some of these clients are facing, this is urgent. We cannot waste this opportunity to fix these issues and to deliver an acceptable outcome for those clients who risk losing everything.
It is clear that many parties across the financial services value chain played a role in this matter. If it takes a public inquiry to flush out everything that has happened and what needs to be done to fix these problems for clients, then the financial services industry must support this. Consumer protections and compensation regimes are critical for consumer confidence in the superannuation system, and the financial system more generally – the current regime is not fit for purpose, and must be fixed.
