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Listed wealth manager Netwealth Group (ASX: NWL) has agreed to pay clients compensation totalling $101 million to cover their losses from investing their superannuation into the failed First Guardian Master Fund.
Netwealth, which admits it contravened the Corporations Act in relation to First Guardian, is making the payments to more than 1,000 investors after reaching an agreement with the Australian Securities and Investments Commission (ASIC).
The move comes on the heels of ASIC launching Federal Court proceedings against Netwealth Superannuation Services (NSS) and Netwealth Investments Limited (NIL), as trustees of the Netwealth Superannuation Master Fund.
However, Netwealth says that as part of the compensation agreement ASIC has agreed not to seek a penalty from the court.
ASIC plans to seek orders that NSS and NIL failed to do “all things necessary” to ensure that the financial services covered by their financial services licences were provided “efficiently, honestly and fairly”.
“The agreed outcome allows us to move forward and continue our work in supporting our members, our clients and our business,” says Netwealth CEO Matt Heine.
“We have been in regular dialogue with impacted members. We know the level of distress the collapse of First Guardian has caused and it was critical to us to provide members with assurance by the end of the year that compensation would be forthcoming.
“We believe this is the right course of action for Netwealth and impacted members and is in line with our culture and values.”
ASIC says between 26 March 2021 and 28 December 2022, about $128.5 million was invested in First Guardian by 1,303 Netwealth clients.
Some 1,084 members still had $100.6 million invested in First Guardian in May last year when the responsible entity, Falcon Capital, froze redemptions.
ASIC’s investigation into the First Guardian and Shield Master Fund collapses, which involves multiple entities that had advised clients to invest in the funds, led to Macquarie Group (ASX: MQG) in September agreeing to a $321 million compensation for investors in the Shield fund.
ASIC deputy chair Sarah Court describes the agreement with Netwealth as “a welcome outcome for many Australians and stems the significant losses that threatened their retirement savings”.
“More than 1,000 members who invested through Netwealth’s superannuation platform were facing huge uncertainty when First Guardian collapsed,” says Court.
“ASIC’s investigation will ensure Netwealth restores these members to the position they were in before they saw their savings eroded.
“This is the fourth action we’ve taken against a superannuation trustee in relation to our ongoing First Guardian and Shield investigations.”
In October, Netwealth revealed it was seeking federal government assistance to help compensate the affected members who invested in First Guardian.
The company says the compensation announced today will be recorded as an extraordinary expense in the current half year, and likely to hit the bottom line by about $71 million.
Netwealth says the compensation, which will be credited to members’ super accounts by 30 January 2026, will be funded via cash and debt.
“Netwealth remains of the belief that the losses suffered by affected members were primarily caused by the fraudulent conduct of various entities and individuals including, in particular the responsible entity of First Guardian, Falcon Capital Limited,” says Heine.
“We also recognise that it is important for us to review and further uplift our onboarding and monitoring processes in relation to the investment options we make available to our members.”
ASIC says the “exceptional circumstances” of the matter are behind the corporate regulator’s decision to spare Netwealth from penalties in its Federal Court action.
Reasons include the “strong public interest in obtaining a timely court-based outcome” and the level of cooperation by NSS and NIL in agreeing to repay members their losses in full.
“The action we’ve taken in the last few months puts super trustees well on notice: they are gatekeepers for their members’ retirement savings and ASIC expects them to take active steps to monitor the funds they make available on their choice platforms,” says Court.
“ASIC now has 12 cases underway against 20 defendants and is continuing to investigate misconduct relating to Shield and First Guardian to hold those involved to account.”
Netwealth shares were trading 11c higher at $26.60 at 10.39am (AEDT).
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