Some additional commentary in the AFR on this as well today
https://www.afr.com/companies/financial-services/netwealth-to-repay-100m-to-first-guardian-victims-20251218-p5nolr
and further in Chanticleer
https://www.afr.com/chanticleer/the-macquarie-tax-comes-for-netwealth-but-glaring-hole-not-fixed-20251217-p5nof5
For those not behind the paywall:
The Macquarie tax comes for Netwealth, but glaring hole not fixed
Even if repaying clients works and it is politically palatable that superannuants are made whole just before Christmas, there is still a risk it fails the broader wealth system.
It is so easy to say that Netwealth deciding to throw $101 million to financial advisers and their clients/victims of the alleged First Guardian fraud is good business, particularly when it is not your $101 million to give.
It removes uncertainty that has shaved $1.2 billion off the company’s market value.
It shows Netwealth is a solid member of Australia’s $4.5 trillion superannuation sector.
It prevents Netwealth asking Australia’s advisers, many of whom are clients, to cover the losses via the Compensation Scheme of Last Resort (CSLR), or socialising the losses among every other Australian superannuant under the Superannuation Industry (Supervision) Act.
But we must realise there is a cost.
What investors considered a ticket-clipper, and a fast-growing one at that because advisers like its software and services, is taking financial responsibility for the alleged fraud. The First Guardian liquidator’s report is harrowing.
Netwealth didn’t advise anyone to invest in First Guardian, didn’t incentivise advisers to put clients into the fund, and, most importantly, didn’t invest the funds that have now disappeared into thin air.
So just because Netwealth is finally taking responsibility and throwing shareholders’ $101 million at the problem – a big price for a company that recorded $316 million revenue last financial year – the underlying issues will not go away.
Are we saying that Netwealth’s line-in-the-sand moment, like Macquarie’s before it, makes platform owners responsible for frauds in the future because they are the big/financially fit layer in the wealth management chain?
If so, it’s hard to see how they keep hosting advisers/their clients’ for 30 basis points or so in fees and/or how investors don’t factor provisions for losses into platform owners’ valuations. Macquarie’s investment banking arm underwrites equity raisings for 150 or 200 basis points (and even then, only once they’re largely off-risk).
So although we all want accountability for First Guardian, particularly its investors who have lost up to $446 million in contributions, we’re yet to find it in the right place. Cracking down on platform owners needs to be just part of the fix.
Even if repaying clients works for under-fire Macquarie, it now works for former cleanskin Netwealth, and it is politically palatable that superannuants are made whole just before Christmas, there is still a risk it fails the broader wealth system, and we don’t learn the lessons that need to be learnt.
“It is more than a slap on the wrist; it is $101 million that will not make its way to Netwealth investors or be reinvested into growth.”
We still need firm action against the advisers, a third-party research firm, First Guardian’s responsible entity Falcon Capital and everyone else involved in the shocking episode. Otherwise, we’re letting a couple of big businesses paper over a shocking episode that shouldn’t be forgotten.
The regulators have to go hard because super’s $4.5 trillion pool is only getting bigger, and we’re in new territory with the rise of investment platforms that are hoovering up super and non-super assets invested via financial advisers.
Netwealth’s $101 million settlement came with an enforceable undertaking from the Australian Prudential Regulation Authority, requiring it to improve due diligence of new investment options on its platform and better monitor and review existing investment options.
Netwealth has started some of the work, but APRA has it engaging an independent expert to examine the high-risk options on its platform, just to be sure.
Netwealth and its rivals now know regulators expect them to be more strident gatekeepers. Netwealth is wearing two hats here; it is a platform owner and a superannuation responsible entity overseeing 115,000 member accounts and $40 billion in assets.
About one-third of its funds under advice at June 30 was retail super money.
Thursday’s settlement is a big setback for Netwealth – the biggest since it listed eight years ago, if not the biggest in its 26-year history.
It will repay the $101 million using existing cash and debt and take a $71 million hit to 2025-2026 financial year net profit after tax (the repayment is tax-deductible), making it an expensive way to restore confidence among financial advisers and wealthy Australians.
It is more than a slap on the wrist; it is $101 million that will not make its way to Netwealth investors as dividends or be reinvested into growth.
Investors welcomed the news and Netwealth shares were up 1.8 per cent by lunchtime on Thursday.
Its settlement coincided with harsher regulatory action for Equity Trustees, one of the other big trustees involved in First Guardian, which was hit by the imposition of additional licence conditions.
