ASIC’s court filings in its actions against InterPrac Financial Planning detail how the licensee let clients down at every step of the process, from failing to step in when misconduct became apparent to providing template responses that dismissed even legitimate complaints.
ASIC announced on Thursday it is suing InterPrac, self-licensed advice firm MWL Financial Services and researcher SQM for their respective failures in the $1 billion collapse of the Shield and First Guardian master funds.
ASIC alleges InterPrac began to receive complaints from clients around September 2024 but instead of investigating the complaints it provided a template response that asserted the relevant advice had been appropriate.
The regulator will say that Interprac had the ability to monitor revenue generated by the authorised representatives and the specific products in which funds of their clients were invested.
In court documents filed on Thursday it alleges that InterPrac noticed a spike in new business around June 2022 from Venture Egg and Reilly Financial, which was followed by a compliance audit.
The audit uncovered issues including that fact-finding and client data was being obtained by unlicensed third-party lead generator AGAT Business and Venture Egg advisers weren’t verifying any of this information with clients.
Furthermore, advice wasn’t personalised but was instead cookie-cutter, and modelling that underpinned the advice was based on unrealistic returns or missing disclosures.
Client fees were also “extraordinarily high”, and the advisers were seeing a high number of clients within any given time-period.
The court filings state that InterPrac placed Venture Egg on a two-stage pre-vetting arrangement from 27 July 2022, requiring the firm to submit every client advice file to InterPrac for approval before preparing a Statement of Advice, and then submitting the completed SOA for approval before presented to the client.
Despite this arrangement, ASIC alleges that Venture Egg did not comply with the requirements and that Interprac should have known, as the advice firm only provided the licensee with three SOAs for review between 27 July and 5 September 2022, despite Venture Egg having recommended 75 clients invest into Shield during that period.
“Despite identifying that Venture Egg must have been providing SOAs to clients without complying with the pre-vetting requirements, Interprac took no further steps to ensure compliance with pre-vetting, or to investigate or sanction Venture Egg,” the court filing says.
Placed on hold
On 6 July 2023, following a letter from ASIC raising concerns about financial advice Venture Egg provided about the Funds, InterPrac placed the funds on hold for new business on 11 July 2023.
But despite the hold, InterPrac’s compliance team failed to monitor whether advisers continued to recommend clients invest in the fund: between July and August 2024, $67.3 million of retirement savings from 1389 clients went into First Guardian; and from July onwards, $75.6 million from 2358 clients went into Shield.
The filing says InterPrac lifted the hold on First Guardian at the request of Ferras Merhi, one of the advisers ASIC considers a central part of its investigation, in September 2023.
Merhi informed InterPrac in June 2024 that he had received more than $19 million from entities associated with First Guardian and $500,000 from an entity associated with Shield. However, Venture Egg and Merhi remained as authorised representatives until 31 May 2025.
The documents also allege an inappropriate commercial arrangement between InterPrac’s head of advice and compliance Michael Butler and Merhi.
Butler is alleged to have provided paid consulting services to Financial Services Group Australia, which was run by Merhi, from January 2023 onwards.
The court documents state that Butler told InterPrac’s compliance team that InterPrac chief executive Garry Crole had approved the arrangement, but ASIC alleges this created a conflict of interest.
InterPrac aware of lead generators
ASIC has also accused InterPrac of failing to respond appropriately to the use of lead generators.
The court filing said that Venture Egg had proposed to InterPrac that Imperial Capital Group Australia would be used for referrals, and it involved the promotion of First Guardian as the preferred investment product for the advice firm as the means for the client to access the fund.
“InterPrac informed Imperial that ‘you can bring [the] concept that one of the preferred funds you use is First Guardian’ but ‘you can’t make it so that FG [First Guardian] is the underlying reason for the call and that personal advice is secondary to that process’,” the court document alleges, adding that after revisions were made, InterPrac approved the call script.
In October 2021, Imperial presented Interprac with a proposal to change the lead generator’s business model to provide advice about Shield, arguing it would be “commercially more viable” to present a product to clients.
This proposal included a call script that Imperial staffers could use to promote the fund to clients before referring them to a Venture Egg adviser.
Part of the lead generator’s proposal involved presenting clients with a chart showing Shield outperforming other top super funds between June 2016 and June 2021, despite Shield not being registered with ASIC until May 2021.
The court document notes that InterPrac didn’t approve the proposals that were originally presented to them, but the interactions should have put the licensee on notice that Venture Egg and Merhi had a predisposition to recommend the funds to prospective clients. This should have suggested, according to ASIC, a potential conflict of interest with the funds as the lead generators would promote the funds while generating business for the advice firms.
The regulator said InterPrac missed the opportunity to make sure there were appropriate rules and guidelines regarding the use of lead generators by its authorised representatives.
Automated approval
As for how the products were approved for use by InterPrac’s advisers, the court documents allege any managed fund could be automatically added to InterPrac’s approved product list (APL) if it had a minimum rating from external research provider.
SQM, which rated both funds, had a threshold of 3.5 out of 5 stars as being acceptable; Shield received 3.75 stars while First Guardian received 3.5 stars.
Shield was available on InterPrac’s APL from September 2021 after it received the SQM rating, but InterPrac did not undertake any assessment of either fund before being added to the APL, the regulator alleges.
The court filings allege that Butler approved First Guardian for recommendation after a request was made by Rhys Reilly, one of the advisers under ASIC investigation.
In total, ASIC alleges Venture Egg and Merhi advised 2930 retail clients to invest $243 million in First Guardian between January 2021 and August 2024, and advised 2664 retail clients to invest a total of $173 million in Shield between January 2022 and December 2023.
Rhys Reilly is alleged to have advised 1396 retail clients to invest a total of $148 million in First Guardian between April 2021 and May 2024, and advised 1139 retail clients to invest a total of $114 million in Shield between January 2022 and December 2023.
In total, around 6843 retail clients invested about $677 million in the funds which was approximately 50 per cent of the total superannuation investments made by retail clients of the authorised representatives, with some SOAs having investments into other products including ETFs.
