The proposed $50,000 sale of InterPrac Financial Planning Pty Ltd (InterPrac) to Conquest Investment Partners Pty Ltd (Conquest) marks a pivotal moment in the Shield[1] and First Guardian Master Fund[2] collapse.
It is alleged that InterPrac was involved in critical oversight failures that allowed its representatives to steer some 6,843 clients into high-risk funds (Shield and First Guardian). What has materialised is $677M in lost superannuation balances.
Civil proceedings filed by the Australian Securities and Investment Commission’s (ASIC) against InterPrac allege the firm failed to ensure its advisors acted in clients’ best interests and failed to vet the products properly. A sophisticated scheme of lead generators and aggressive sales tactics funnelled unsuspecting consumers into these funds including cold calling consumers who responded to innocuous online “superannuation health check” ads and pressurising others into “advice” meetings.
ASIC contends that no competent advisor would put large chunks of anyone’s retirement savings into these illiquid, high-risk funds. In fact, evidence suggests investor money was being misused on risky projects and even on the personal expenses of the fund operators, indicating a serious breach of trust.
The collapse has left consumers in a perilous position with the Australian Financial Complaints Authority (AFCA) receiving at least 800 complaints thus far (a number which is likely to grow) from consumers seeking compensation for their losses.
The central question we wish to pose is not “who is liable?” but “who can pay?”
Professional indemnity (PI) insurance
Professional indemnity insurance was supposed to be one of the safety nets for consumers. ASIC’s Regulatory Guide 126 (RG 126) requires AFS licensees like InterPrac to hold PI insurance that is “adequate” to compensate retail clients for losses caused by breaches of financial laws”. We traverse common covers for AFS licensees in our fundamental here.
Such policies should cover misconduct by the licensee or its representatives (including negligence, fraud, and other breaches) and even cover awards from external dispute resolution schemes like AFCA. Theoretically this means if an advisor gives bad advice and a client loses money, the licensee’s insurance can pay the compensation.
When a high-volume, high-loss scenario unfolds, PI insurance becomes a pressure point in the consumer protection system. PI insurance policies have caps and conditions that strain to respond to significant claims like those extracted above and the present Shield/First Guardian collapse:
- A PI policy provides coverage up to the “limit of indemnity” inclusive of costs. Where the policy limit is expressed in this way it means that this is the total indemnity available under the policy for any covered loss(es) over a particular policy period. Here, the indemnity available may be for Sequoia and InterPrac (and their respective directors, officers and representatives) for losses including AFCA disputes, defence costs and damages for all claims notified during the policy period. InterPrac’s policy limit is reportedly $20M in the aggregate. To put this in context, if each of the 6,000 plus affected clients were to claim even a relatively modest sum, the claims would dwarf the insurance proceeds many times over. Once the limit is exhausted, the insurer’s obligation ends, leaving remaining claimants uncompensated.
- Insurers will ordinarily treat multiple claims arising from the same underlying cause (such as a recommendation into the same products) as a single claim. In a scenario like Shield/First Guardian, where thousands of clients suffered from the same advisors and products, the insurer could assert that this is one event (or a series of related events) and pay out only up to the single-claim limit. In practice, this means the entire saga might only trigger a $20M payout once, rather than $20M per client or per claim.
- PI policies typically require the policyholder to pay an excess. In many instances the excess, like the limit of indemnity, will be treated as an aggregate excess where there is the same underlying clause. However, some policies require an excess is paid per claimant. If it is the latter, for one or two claims this is manageable, but if hundreds of individual AFCA complaints start converting into awards, the cumulative excess payable by the licensee could be crippling. A licensee might face, say, a $20,000 excess per claimant. If the licensee can’t meet those excess payments (e.g. because it’s insolvent or has minimal assets), claims may go unpaid despite insurance on paper.
- If a licensee ceases business or is sold, maintaining insurance to cover future claims (so-called run-off cover) is vital. However, RG 126 stops short of mandating automatic run-off cover. It states that the coverage is not available readily in the market. That is not entirely true. Consequently, if InterPrac was simply wound up without a successor maintaining its insurance, or having liability to meet payments for past insurance, any new claims emerging after closure would likely not be covered by PI at all. Professional indemnity is a “claims made” contract of insurance, see our fundamental here. It is proposed that Conquest has signalled it will keep the business going rather than dismantle it, which presumably means continuing insurance coverage, but to what extent?
Adequate policy limits?
The pressure points are exacerbated when a licensee underinsures relative to its risk exposure. ASIC’s rules set a minimum PI cover (Regulatory Guide 126 “RG126”) ranging from $2M (for small firms) up to $20M for larger firms.
Yet “adequacy” in the guide is to us, more of a fluid concept. A licensee might technically comply with RG 126 and still be grossly underinsured for a catastrophic event. InterPrac’s case starkly illustrates that if the alleged $20M policy limit was accurate, this is nowhere near adequate for the $677M in ‘at risk’ investments.
We query the enforcement here of “adequacy” by the regulator. Particularly at the moment where top-up insurance is extremely affordable (see our recent market update for professional indemnity) surely it should be focussed on licensees holding higher policy limits?
Furthermore we think it is completely futile and mis-aligned to set adequacy of policy limits to fee revenue of licensees. Surely considerations such as:
- number of representatives of licensees,
- assets under management,
- exposure to funds under management in specific investments,
- number of investors,
- average investment amounts and
- maturity of the licensee and its investments
should be considered for setting adequate limits.
We consider this to be a significant failure of the regulator’s guidance.
What have we learned from the past?
Having regard to the past, the late 2000s were marked by several high-profile financial collapses that left clients of poor financial advice and mis-selling with little redress:
- Westpoint (2005–06)
A property development scheme that collapsed owing money to thousands of investors. Financial planners had funnelled clients into Westpoint’s high-yield debentures (often attracted by commissions as high as 10 per cent).
When Westpoint collapsed, investors were left with $388M in outstanding capital. Both ASIC and investors’ lawyers scrambled to recover funds from advisors, directors, trustees, and even an auditor. After years of litigation, only a fraction of the losses were recovered (liquidators estimated around $56M).
Many Westpoint victims never recouped their full investment, illustrating how even extensive PI litigation and settlements can leave consumers without adequate redress.
2. Storm Financial (2008–09)
A financial advice firm that collapsed during the Global Financial Crisis, after having encouraged over 3,000 clients to take on double-geared investment strategies (using home equity and margin loans to invest in the share market).
When the market plunged, clients were hit with margin calls and massive losses, and Storm went into liquidation. In the aftermath, there was no single insurer payout that solved the problem; instead, several banks that had facilitated Storm’s model came under pressure to compensate.
Commonwealth Bank, for instance, eventually agreed to a settlement of around $200M to Storm victims, and other banks paid smaller amounts. Despite these contributions, not all investors were made whole, some avoided losing homes, but lost substantial portions of their savings.
Again, the pattern was that regulatory and legal action led to partial redress, but not complete restoration.
3. Great Southern (2009):
A significant agribusiness managed investment scheme (MIS) that raised over $1.8B from around 52,000 investors before collapsing in 2009. Great Southern’s forestry and agriculture projects were heavily promoted by financial planners (often lured by high commissions, similar to Westpoint).
When the company failed, investors not only lost their upfront contributions but were left liable for loans taken to finance those investments. Class actions and settlements yielded only limited relief (one settlement for $23M was approved which was small in proportion to the scale of losses estimated to have been suffered).
Many investors were left with debts and losses that far exceeded any compensation. The regulatory lesson from Great Southern and its peers (like Timbercorp, another MIS collapse) was the need for better product due diligence and advisor conduct.
The Shield/First Guardian fallout mirrors failures of prior collapses, particularly around policy limits:
- Westpoint & Great Southern: Like these legacy failures, a breakdown in research-house due diligence (specifically SQM Research’s ratings) and a reliance on “approved product lists” that prioritised high commissions over client interests.
- Storm Financial: The Storm collapse taught us that when the primary firm fails, the burden shifts to the “deep pockets” namely the banks and trustees. We are seeing some evidence of this again with Macquarie[3] and Netwealth[4] already committing over $420M in compensation.
A safety net of sorts has evolved since these high-profile cases in the form of the Compensation Scheme of Last Resort (CSLR) which seeks to improve consumer redress.
CSLR
The scheme commenced on 2 April 2024 and was designed to pay out unpaid AFCA determinations up to a cap of $150,000 per claim. It exists precisely for scenarios like this, where a financial firm collapses or can’t pay what’s owed to wronged clients. In theory, the CSLR ensures a “last resort” pool of funds so that at least partial compensation is available even if both the firm and its insurer fall short.
However, the CSLR has its own practical limits and implications.
First, many victims in Shield and First Guardian will likely have claims far exceeding $150,000 (some individuals had several hundreds of thousands of dollars of superannuation rolled into these funds). The scheme’s cap means those people would still suffer substantial losses even if their AFCA complaints are successful and paid out by the CSLR. The $150,000 is a lifesaver for some, but not a full remedy for many.
Second, the CSLR is funded by levies on industry: primarily on financial advice firms and other financial institutions. A mass failure like InterPrac’s threatens to draw heavily from the scheme, which in turn triggers higher levies on the remaining advice industry to refill it. In fact, the anticipated claims from this and other recent licensee failures have already far exceeded initial expectations.
The government was notified of an estimated $67.3M in personal advice-related claims costs for 2025–26, significantly above the normal annual levy cap for the advice sector (set at $20M). This forced the consideration of a special levy to make up the shortfall. In other words, the fallout of one firm is being burdened by the wider profession.
This has not gone unnoticed by industry stakeholders. Many advisors and licensees are understandably frustrated that they might foot the bill for a competitor’s misconduct. InterPrac’s parent company Sequoia Financial Group Limited’s (Sequoia) own managing director, Garry Crole, remarked on AFCA’s approach if it pins all blame on the advisors/licensee it would:
“put everything against the advisor and nothing against any other party, which basically sends everything to the CSLR and is bad for the industry”.
Regardless of how blame is apportioned, the reality is that a licensee failure shifts the compensation burden onto the broader system. If PI insurance is inadequate and the firm is broke, it is the CSLR that burdens the shortfall and by extension other licensees and ultimately consumers (through higher advice costs) who pay.
This creates a classic moral hazard issue: bad actors’ failures can translate into costs for the good actors, unless regulation and enforcement effectively prevents such failures in the first place.
The kicker: fire sale
InterPrac, as the financial services licensee, benefitted from the inflows (through fees or commissions) yet allegedly ignored red flags regarding the two troubled funds. These included unusually high revenue spikes from the advisors pushing these products and even direct payments flowing to the advisors from the Fund promoters.
Selling InterPrac for a nominal sum and “writing off” $11M in its value, Sequoia intends, it appears, on isolating the problem within InterPrac. The parent company may intend to remove cross-guarantees and financial support, thus leaving the new owners to deal with the mess, and potentially limited insurance. This kind of restructure might protect the parent’s shareholders, but it doesn’t add a single dollar of compensation for its clients. It may even hinder recovery if it complicates pathways to coverage.
Sequoia frames the sale of InterPrac to Conquest as a removal of “regulatory uncertainty”. To us, however, it suggests an attempt to ring-fence liability for losses, raising questions about regulatory oversight and consumer redress.
The takeaways
For consumers, the erosion of confidence is profound. If a $1.1B collapse results in a “fire sale” of the responsible licensee for $50,000, that is likely to impact the safety of financial advice in Australia.
Licensees should improve governance and risk controls particularly within their investment committees and approved products. They should ensure their professional indemnity limit is truly adequate: not based on what revenue they earn, but on the considerations we have outlined above.
Considerations for advisors
We implore advisors to perform proper due diligence on any products recommended prioritising clients’ best interests over commissions or incentives. Association with mis-selling schemes may cause irreparable harm to reputation. Ethically and legally, high-pressure sales tactics and “cookie cutter” advice are simply ‘against the grain’. Quality advice must be tailored personally to the client’s best interest.
Early intervention by ASIC and other regulators focussing on licensee oversight and product approvals would help considerably. The Shield/First Guardian saga shows the need to police not just advisors, but also the entire ecosystem (product issuers, research houses, platform trustees) to prevent unsuitable products from ever reaching consumers. The insurance requirements need to be revisited for high-volume licensees: if a firm’s business could foreseeably generate claims far above its cover, that is a prudential risk to address proactively. Bellrock’s guidance above should be considered.
Considerations for consumers and investors
Consumers ought to know that no regulatory system can guarantee that every bad investment or bad advice will be caught in time. Be vigilant when researching investments and the advisors recommending them. Know that compensation schemes have limits and investing carries risk that even the law can’t fully shield you from.
Key takeaways
The collapse of Shield and First Guardian remind us that large financial collapses can happen. Redress is not yet perfect: PI insurance and the last resort compensation schemes help but there are significant shortcomings: the burdening of other advisors and consumers being left with only partial remedies.
We understand a process is in place for Government and regulatory oversight. These include enforcement of stricter review of limits being held by large licensees and their representatives under RG126, and particularly here, appropriate scrutiny of the intended divestiture.
Bellrock will closely monitor and report on developments.
Without active intervention to ensure:
- future collapses do not recur
- that consumers have adequate access to redress via adequate and appropriate insurance
- in this case, appropriate scrutiny and safeguards in connection with the intended “sale”
we foreshadow an environment where the “last resort” becomes the only resort, which will be at the cost of the profession: which it can ill afford.
[1] https://www.asic.gov.au/about-asic/asic-investigations-and-enforcement/enforcement-activities/shield-master-fund/
[2] https://www.asic.gov.au/about-asic/asic-investigations-and-enforcement/enforcement-activities/first-guardian-master-fund/
[3] https://www.asic.gov.au/about-asic/news-centre/find-a-media-release/2025-releases/25-215mr-macquarie-admits-to-shield-contraventions-and-commits-to-pay-affected-members/
[4] https://www.asic.gov.au/about-asic/news-centre/find-a-media-release/2025-releases/25-307mr-netwealth-admits-to-first-guardian-failures-and-agrees-to-compensate-affected-members-100-million/
