Little exemplifies the level to which Sequoia is grasping at straws than addressing its “urgent request” for activation of the Operational Risk Financial Requirement (ORFR) regime to Minister for Financial Services Dr James Mulino.
At least Sequoia chief executive Garry Crole used Minister Daniel Mulino’s correct email address.
The level of attention to detail in its plea for the government to take action to remediate the roughly 12,000 affected investors doesn’t bode well for its chances of success.
Also addressed to Prime Minister Anthony Albanese and Treasurer Jim Chalmers, the letter, seen by ifa, details the string of systemic failures that led to these collapses.
“The Shield Master Fund and First Guardian Master Fund failures which appear fraudulent in the case of First Guardian represent more than individual fund collapses,” Crole detailed, adding that they also “expose systemic weaknesses”.
The CEO was clear in who was to blame, citing the due diligence processes by APRA-regulated trustees, ongoing monitoring obligations of approved investment options, responsible entity oversight and auditor independence, platform governance standards across the superannuation industry, and a “regulator who elected not to share information of its concerns with stakeholders”.
It isn’t a bad list, and all of those parties should rightfully be chastised.
However, it’s hard to overlook a fairly significant player in the $1.1 billion disaster that Crole failed to mention.
Licensees.
All told, five licensees had authorised representatives that advised clients to invest their super in one or both of the failed funds.
Sequoia subsidiary InterPrac is the only one that still has an AFSL, with ASIC cancelling the licences of Financial Services Group Australia (FSGA), Next Generation Advice, MWL Financial Services, and United Global Capital.
InterPrac also has the largest potential exposure given it licensed Ferras Merhi and his firm Venture Egg, as well as Reilly Financial and Miller Wealth Group.
However, reading Crole’s letter, you would have no idea that any of the investors were advised at all, let alone how many came through InterPrac-authorised firms.
Looking at the details of the proposal, InterPrac outlined a three-tier approach that involves APRA issuing guidance that the failures qualify as ORFR events that would “provide a very clear regulatory pathway for all trustees to activate reserves”.
Step two is the super trustees deploying their ORFR reserves to remediate their members, followed by the government establishing a “temporary, conditional Commonwealth facility to top-up trustee ORFR where shortfalls exist”.
Again, none of the responsibility for paying back client losses falls on the licensee in this scenario.
The only party that has taken ownership of their role in failing consumers is Macquarie, with the financial giant’s super fund trustee reaching a deal with ASIC to cover the $321 million of investments in Shield from around 3,000 members.
Though even this can be a problem, according to Crole.
“We commend Macquarie for proactively remediating affected members demonstrating both regulatory compliance and ethical leadership, but this has created an uneven outcome,” he wrote.
“Members invested through Netwealth, Equity Trustees, and Diversa face unclear remediation pathways despite identical operational risk circumstances.”
Similarly, he argued: “Given Macquarie has paid 100 per cent of invested capital back to members but no interest payments and would be expected to receive 60 per cent back on the entire balance of Shield at close date rather than capital invested, Macquarie should be asked to use ORFR for interest at 5 per cent.”
So, even though Macquarie is the only party involved to have accepted any responsibility, it should make another payment while InterPrac pays nothing.
Sure, there’s a cynical take that Macquarie only did it because it will get some money back through liquidation and the positive press will keep its reputation strong.
But regardless of motivation and whether any of that is true, there are 3,000 super members who haven’t lost their savings because Macquarie took some accountability.
Crole’s letter coming the same week that Netwealth sought government support to cover its members’ $101 million exposure to First Guardian has merely emphasised that no one can expect the parties involved to own up to their role and take a financial hit.
After all, everyone else is to blame.
So let me get this straight…
Equity Trustees, Macquarie, Diversa and Netwealth — the trustees and platform gatekeepers with full access to the fund managers, legal teams, and compliance resources — were “defrauded”. Equity Trustees publicly stated that both First Guardian and Shield PASSED their due diligence.
But now people want to blame financial planners, who relied on those very approvals, plus SQM Research’s “Favourable” investment ratings, as if advisers somehow had superior investigative powers to platforms, trustees, and research houses?
Give me a break.
If the trustees, platforms and research houses — whose entire job is to vet products — got fooled, how on earth is it the financial planners’ fault? Advisers don’t work for those organisations, don’t get access to trustee files, and aren’t invited into product due-diligence committees.
Let’s call it what it is:
You can’t claim the industry’s top gatekeepers were defrauded and then, in the same breath, say advisers should have known better than the very entities responsible for approving the products. That’s not logic — that’s scapegoating.
The two most culpable parties here are SQM and Interprac. The sheer size and scale of parties affected dictates that both SQM and Interprac should be put out of business for good. It’s wild that Interprac sees fit to proffer their opinion as to who should pick up the tab for their mess.
WHat I would like to see is Keith Ford bring on some compliance experts from Australia (assured support) and overseas to discuss ASICS failures and how what they need to do to PROACTIVELY supervise Licensees and directors
Now that would be worth listening to
Is Interprac/Sequoia too big to fail and the reason why ASIC hasn’t cancelled their AFSL?
That is a very good question I would also like an answer to
This blokes going to do “wasn’t me” by Shaggy for Karaoke at the Interprac Christmas party
Some good points, but it is disingenuous sensationalism to simultaneously claim Macquarie could be expected to receive 60% back, but investors via other platforms will lose all their super.
After the liquidators have finished, ALL the investors (which now includes Macquarie) will receive a similar proportion of the original investment amount back, which has been estimated at about 60%. The exception will be those who originally invested via Macquarie’s platform, that were bought out by Macquarie at 100%.
Not so as 2 very different funds.
Shield with 60% or more asset return.
First Guardian far far lower than that.
Whatever the actual percentage turns out to be for each product, non Macquarie investors have NOT lost all their super. Their super has been frozen. They will get part of it back via the liquidator.
The balance of their losses are likely to be compensated by a mix of of trustees “making good”, govt bailouts, and punishing innocent financial advisers via CSLR.
Yes, SQM Research rated the First Guardian Fund as Favourable. Yes, SQM Research rated the Shield Master Fund as Favourable, no corporate governance concerns. Yes, Macquarie saw fit and comfortable to add it to their APRA regulated super fund investment menu as did Equity Trustees.
SQM Research should be be banned if they said the fund had Favourable characteristics.
Macquarie should be banned for inadequate oversight and breaching APRA Prudential Standard SPS 530
Equity Trustees should be banned for inadequate oversight.
And all interprac advisers involved in this should be banned
You can ban Macquarie and SQM at the same time. I
As should the MIS owners & managers.
Plus MIS auditors
Plus Researchers
Plus Regulators
Plus AFSL Responsible mngrs
Plus Intercrap
“Everyone else is to blame”…. this is actually refreshing giving the strategy for the past 25 collapses has been to simply blame the Advisers and we all move on. The biggest value of Financial Planners it now seems is that the wider market can simply point the finger at a bunch of unrepresented indivduals with zero political clout and zero representation whilst every other participant in the chain gets off easy and continues to make money and we just repeat this dance time after time.
However when there are simply not enough Advisers to blame it leaves no one.
Interprac is done, the advisors should get out whislt they can.
Netwealth asking for a government bailout is ridiculous. Poor DD and oversight is to blame, makes you realise the ‘boring old’ platforms are a better place to be!
Teflon coated!
Its not a lie
If you believe it
This is turning into a pantomime
Why are ASIC scared of Interprac?
If their governance processes are inadequate ASIC needs to review them and also look at their top five authorised rep businesses so all advisers in Australia can rest assured that no more skeletons come out of the cupboard
Explains why they hired the former ASIC commissioner. Bold strategic move!
Everyone knows a former employee can reveal the skeletons in the closet.
Or hide them for his mates
ASIC would have a very full closet that they don’t want people to know about. That’s why they reject so many Freedom of Information requests. The public is owed transparency when it is so obvious their failings.
As revealed by The Australian earlier this year, the FAAA warned ASIC about aggressive cold calling by firms as far back as 2021. These firms had commercial relationships with First Guardian, The Australian understands. It does not appear that ASIC followed up on these complaints.
If push comes to shove it is highly likely that Sequoia will move clients and advisers to a new AFSL and put Interprac into administration.
ASIC approved Illegal Phoenix playbook, just like dodgy Dixon’s.
You’ve got to feel for these big corporates. They should just let us advisers pick up the tab through CSLR so that they can continue to operate without further financial harm. At least the rest of the poor banks won’t be impacted, they’ve endured enough already….
why do you feel sorry for the poor banks and big corporates?
It is evident that Interprac had full oversight of this business model and formally approved it. The close relationship between its former compliance manager and Mr. Merhi raises serious concerns regarding governance and accountability.
Numerous advisers voiced legitimate concerns, urging the business to slow its expansion and strengthen compliance and implementation processes. Unfortunately, these warnings were largely disregarded by senior management. Despite this, advisers are now being associated with unethical actions that stemmed from decisions made at the executive level.
This situation is unacceptable. Transparency and accountability are essential to restoring trust within the profession. Preventing financial problems costs less than solving them — robust compliance and ethical leadership prevent harm long before remediation becomes necessary.
If the truth continues to be ignored or concealed, the same issues will persist for years to come. Clients deserve better—leadership must accept responsibility, as organisational integrity always starts at the top.
If i was the trustee or operator of platform or super fund i would be re-evaluating any distribution agreements in place with Interprac..
In other news, SQM Research rated First Guardian and Shield Master Fund as 3.75/5 “Favourable”, “no corporate governance concerns”. Surely the expert research house was supposed to be looking at the fund’s governance and when the 2 funds have failed, at least take some accountability.
A good starting point would be for Intrapac to refund all the fees they charged for the SOA’s.
I like this idea
SQM Research should also refund all the fees they charged the funds for their “independent” research reports and re-imburse affected clients.
Macquarie and Equity Trustees should refund all the administration fees they charged for inadequate oversight and breaching their trustee responsibilities.