Before purchasing financial planning business Meridien Wealth in June 2012, managing director David Adiseshan was assured by the previous owner that the company was a “going advice concern”.
Little did he know it would be implicated in a potential class action of up to $200 million by some 3000 investors in Commonwealth Bank of Australia (CBA) products sold via some of its subsidiaries, including Financial Wisdom, the previous Australian financial services licensee (AFSL) of Meridien Wealth.
This legal action also includes the activities of banned financial planner Rollo Sheriff, a co-owner of Meridien Wealth until February 2010, along with other financial planners from Commonwealth Financial Planning (CFPL).
With Meridien now operating under the AFSL of Premium Wealth Management, the company’s new owner Adiseshan has spent the past two years repairing the business and assisting clients in seeking restitution.
Picking a winner not straightforward
Before purchasing Meridien Wealth, he looked at a number of companies, ultimately selecting it “in part because it was the largest Financial Wisdom financial planning business in North Queensland”.
“I bought a proprietary limited business instead of just the client book because of certain representations made to me by Commonwealth Bank and Financial Wisdom,” Adisheshan says, explaining he conducted about seven months’ of due diligence before making the purchase.
Asked whether he knew about the ongoing issues of some of the business’s legacy clients at the time of purchase, he again refers to representations made by the previous licensee.
“CBA and Financial Wisdom made representations…about how big the business was, [that the] business had 3000 clients, $135 million-plus in funds under advice [FUA], revenue of $3 million-plus…and average client size exceeding $100,000,” he says.
“On date of purchase, representations from CBA, Financial Wisdom and the vendor…was [that there was] 1000 active clients, $792,000 in revenue and $60 million of FUA.
“So obviously, with the loss of 2000 clients, part of the embedded value was the opportunity to…provide better non-aligned financial advice to people who were financially naive and trusting and continue to be in need of quality advice.”
Adiseshan says the business model he planned to implement after buying Meridien was “not unprecedented”. He refers to the approach adopted by Spiro Paule, managing director of of Financial Index Wealth Accountants (Findex), which bought the Storm Financial client book in mid-2009.
“I’ve been trying to do the right thing, have got a good team, a great client base in need of good advice,” Adiseshan says.
Strategic deleveraging
There are suggestions that almost half of Meridien’s FUA had been tied to margin lending, a claim that emerged as a result of the investigation by the ABC program Four Corners and Fairfax Media.
Adiseshan says that since the purchase, he has been concentrating on “strategic deleveraging” of the business. With just under 1000 active clients across risk and investment products, the scope of the margin loans has been effectively reduced.
He says some clients had been advised for more than 14 years by the business under its previous name of Investorcoach (Meridien Wealth was known as Irwin & Sheriff Investorcoach prior to 2005).
“Some are 65 years of age and over, you can’t retire with a margin loan,” Adiseshan says.
“You don’t just sit around and wait. You need to restructure, manage your financial risk and manage your sleep-well factor.”
However, he stresses that it hasn’t purely been a process of unwinding these margin loans.
“For some people…the gearing level may have been appropriate, particularly in the very strong equity markets we’ve had in the last couple of years,” he says.
“We’ve been particularly constructive. There’s non-recourse gearing, too, which is much more preferable to margin loans, which are full-recourse gearing.
Engaging with the community
Rebuilding Meridien and helping its clients get their financial affairs back in order has involved considerable amounts of pro bono work.
“You end up doing a hell of a lot of hand holding, reassuring them about strategy and ensuring their risk profiles remain current,” Adiseshan says.
Newspaper editorial and advertisements have formed part of his approach in rebuilding trust among the firm’s northern Queensland customer base, particularly in Cairns.
In responding to the negative publicity CBA has received from Four Corners and Fairfax newspapers, the bank has also turned to the press. On Wednesday this week, Cairns Post published a CBA advertisement outlining its offer to affected customers of up to $5000 towards the cost of independent advice from a lawyer, accountant or financial planner.
While supportive of the move, which could mean up to $10.5 million of investigation money would be added to the $7.3 million already paid out in compensation, Adiseshan expressed his disappointment at not being informed beforehand.
“We want the same thing, and Meridien Wealth will continue to provide subsidised and sometimes pro-bono services to ‘bad financial advice victims’ of Commonwealth Bank/Financial Wisdom,” he says.
Adiseshan adds that Meridien continues to be approached by former and current clients enquiring about their eligibility for the $5000, with 10 people approaching him in a single day.
Brand value
He indicates that he will retain the Meridien Wealth brand, despite potential reputational damage related to the ongoing ASIC investigation into the previous owner. He says he is focused on making tangible business changes to address concerns rather than tinkering with the brand.
“I didn’t know a bunch of stuff, including [what emerged during] the Four Corners investigation – when that hit, it decimated the brand,” he says.
“At the time I bought the business, I changed everything other than the brand – the licensee, team, adopted a fee-for-service advice model – I did that because I figured, if I just changed the name, people would say, ‘Oh, that’s the old Meridian or the old Storm’.”
“I haven’t shirked the business’s fiduciary responsibility to its clients. I think now we’re getting the halo effect, being instrumental in some long-overdue change.”
