InterPrac delays paying out Shield, First Guardian investors amid AFCA dispute

InterPrac Financial Planning has delayed paying AFCA determinations as a lead First Guardian investor gets dragged into court action.

InterPrac is suing the AFCA over concerns about its jurisdictional coverage which is unable to apportion blame to managed investment schemes, but the case has been re-filed to include First Guardian investor Melinda Kee.

Kee, who leads investor advocacy group SOS Save Our Super and appeared at the Professional Planner Advice Policy Summit earlier this year, received a determination from AFCA in her favour last month.

The determination found the advice received from an InterPrac adviser was not based on an adequate understanding of her circumstances, it provided insufficient benefit over her existing superannuation, it lacked sufficient diversification and was high risk, and it wasn’t clearly stated why it was in her best interests to switch investments.

In court filings, InterPrac argued that the scope of the advice was limited; that it relied on SQM Research’s assessment of the First Guardian Diversified Fund; that Kee’s losses haven’t been crystalised as the liquidation process is ongoing; and that ASIC has taken action against SQM, First Guardian and the platform trustees involved.

AFCA’s rules don’t allow proportion of liability to different entities (fund managers, platform trustees) as the adviser is considered the gatekeeper for the client and is obliged to independently investigate products and not rely on platform trustee APLs or external research.

In a statement to Professional Planner, Kee said the company lacked a moral compass to do what was right by victims.

“What message does this send to ordinary Australians when a victim who successfully went through AFCA is then personally dragged into Federal Court proceedings to defend their determination? Consumers are told AFCA exists to provide accessible justice without needing to go to court, yet now victims are being forced into exactly that.”

She added the emotional toll on investors has already been devastating.

“Many people have lost confidence in their retirement, their financial future and the system itself,” Kee says.

“To now force victims into complex litigation simply to uphold an AFCA determination feels like victimising the victims all over again.”

InterPrac was contacted for comment but didn’t respond by time of publication.

Lacklustre disclosures

InterPrac’s parent company, ASX-listed Sequoia Financial Group, has been fighting wars on multiple fronts against AFCA, ASIC and the ASX.

Sequoia released an update to the ASX on Thursday evening responding to requests for further information from the exchange about lack of disclosures, including why investors weren’t told about the departure of former ASIC commissioner Danielle Press from a committee designed to improve governance of its licensee.

The departure of Press was revealed by Professional Planner in March, after she had joined in a genuine effort to lift standards but had become disillusioned with the company’s direction, and was unhappy with the group’s interactions with ASIC and AFCA.

Reference the Professional Planner article, the ASX queried Sequoia about why her departure wasn’t disclosed when it was made as a “market sensitive” announcement when she was appointed.

Sequoia announced the $50,000 sale of InterPrac to the little-known Conquest Investment Partners in March, a deal that faced criticism from investors, the profession and the regulator.

But the group said at the start of the month plans for the sale have been scrapped, and the company told the ASX in a separate announcement this week that it is facing pushback from Conquest, which has disputed termination of the sale agreement, while Sequoia’s position is the agreement has been terminated.

Sequoia argued Press’s appointment was part of a broader announcement about the creation of the governance oversight committee which it said continues to operate.

ASIC has taken InterPrac to court over allegations it failed in its oversight responsibilities of advisers involved in distributing the Shield and First Guardian master funds.

ASIC has alleged former InterPrac authorised representative Ferras Merhi, who has also been taken to court, signed 6000 Statements of Advice within a three-year period and used marketing companies to push potential clients to his financial advice businesses while receiving nearly $18 million in upfront advice fees and $19 million from entities associated with the funds to market them.

Merhi has disputed any wrongdoing and told Professional Planner last month that he expects the courts will find in favour of any adviser who fights the regulator’s claims that they failed to meet client best interests.

The latest adviser movement tracking from Padua Wealth Data found this week that InterPrac has seen 14 advisers depart this week and the licensee is down from 282 advisers at the start of the year to 176.

Calls for trustee remediation

ASIC has not only taken court action against the Shield and First Guardian funds, lead generators, advisers and licensees involved, but also against SQM Research and the four trustees of platforms responsible for onboarding the funds.  

Macquarie and Netwealth remediated investors to their starting position after ASIC intervention, but that still leaves the door open for AFCA complaints, which could see clients compensated for lost investment gains because of poor advice that directed them to switch into the funds.

Diversa Trustees applied to the government for a bailout under Part 23 of the Superannuation Industry (Supervision) Act, while Equity Trustees is still considering its position.

Kee called on for the trustees and the government to follow through on using bailout for investors.

“Part 23 of the SIS Act exists for situations where fraud has caused loss to superannuation funds,” Kee said.

“ASIC itself has described this as ‘industrial scale misconduct’ and ‘industrial scale fraud’. At some point soon, APRA and Treasury need to recognise that enough is enough and start focusing on restoring members rather than leaving Australians trapped in years of legal warfare.”