ASIC enacts civil penalty proceedings against Fiducian IM

ASIC has enacted civil penalty proceedings against Fiducian Investment Management Services (FIMS) alleging it breached its duties as a responsible entity and engaged in misleading and deceptive conduct.

ASIC is alleging in the Supreme Court of NSW that FIMS failed to act with care and diligence as the responsible entity of the Diversified Social Aspirations Fund and engaged in misleading and deceptive conduct relating to its description of how the fund works in its product disclosure statement (PDS).

FIMS is a wholly owned subsidiary of listed entity Fiducian Group and was the trustee and responsible entity of the fund, which closed in May 2024 due to lack of scale.

The fund was established to meet client demand for a “socially responsible” or “ethical” investment option and was available for investment between 2015 and 2024. Investments were selected by using underlying fund managers or investment funds which had their own bespoke ESG methodologies and tolerance thresholds for choosing investments. 

ASIC alleges these processes did not align with the approach outlined in the fund’s PDS.

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This PDS stated: “The share portfolios comprise investments in companies that aim to be positive for society and for the environment and aim to avoid investments in harmful activities.”

It also specified a number of industries or activities that the fund would avoid investing in.

ASIC also alleges the PDS of the fund contained false and misleading statements that it would monitor the portfolio exposure and investment styles of the underlying funds in circumstances where FIMS did not have the requisite information to conduct that monitoring.

ASIC alleges FIMS failed to act with care and diligence when it failed to:

• Review the underlying investments of the fund to ensure their consistency with the PDS of the fund.
• Ensure its compliance documents identified any ESG related risks and included commensurate controls.
• Comply with its own risk management framework including the procedure for reviewing PDSs.
• Engage or employ an ESG expert to review or monitor the fund.

The corporate regulator further alleges that FIMS failed to comply with its compliance plan when it failed to record and lodge investor complaints in accordance with the compliance plan, and when it failed to address investor concerns that the fund held investments contrary to the representations made in the PDS such as investments in BHP Billiton Limited, Rio Tinto Limited, Woodside Petroleum Limited, Newcrest Mining Limited and Orica Limited. 

This was despite FIMS having policies and procedures that applied to logging, investigating, managing and responding to investor concerns, and to the preparation and sending of external communications including PDSs.

Responding to ASIC’s allegation, a statement from Fiducian Group said: “FIMS is closely reviewing the court documents and the allegations made by ASIC. As the matter is now before the court, FIMS or the company won’t make any other comment at this time.

“FIMS has fully cooperated with ASIC’s investigations to date. 

“The fund ceased to operate in May 2024 due to a lack of scale. The fund invested client monies in two underlying funds and upon closure, investors with two-thirds of funds invested elected to be transferred to these underlying funds, where FIMS bore the costs of the buy/sell differential.

“At the time of closure, the fund had $15.57 million funds under management and 158 underlying investors and delivered an annualised return of 7.62 per cent per annum over the nine years and 86.6 per cent total return since inception.”

ASIC is seeking declarations, pecuniary penalties and adverse publicity orders.