Sources close to the matter speaking on condition of anonymity told ifa that InterPrac will impose a professional indemnity insurance run-off fee of as much as $45,000 on advisers who leave the licensee.
During an online town hall meeting, ifa understands that Crole, InterPrac managing director and group CEO of parent company Sequoia, told the licensee’s advisers there was nothing to worry about despite the turmoil facing the firm.
Last week, the Australian Securities and Investments Commission (ASIC) alleged that “thousands of Australians were exposed to poor financial advice and significant risks” from the Shield Master Fund and First Guardian Master Fund through “critical oversight and compliance failures” by InterPrac.
“ASIC has commenced civil penalty proceedings in the Federal Court against Interprac for allegedly failing to ensure its former authorised representatives Venture Egg (a corporate partnership), and Rhys Reilly Pty Ltd (together, Representatives), complied with the best interests obligations and for failing to have adequate risk management systems,” ASIC said at the time.
“Together, these Representatives advised around 6,843 clients to invest around $677 million of their superannuation into Shield and First Guardian. Both funds have now collapsed, leaving people’s superannuation at risk.”
According to sources, the licensee told advisers it is in negotiations with ASIC over the lawsuit and expects the action to result in an enforceable undertaking, however projected that it could drag out for multiple years before there is a resolution.
InterPrac was also confident that the recent move from Macquarie and Netwealth to no longer accept new business from any of the licensee’s advisers would not expand to more providers.
In a statement to ifa earlier this week, an InterPrac spokesperson confirmed that it had received correspondence from Macquarie and Netwealth advising of their intention to “cease permitting new business recommendation and distribution of their products and services by InterPrac and its associated companies from mid-January 2026”.
“All existing business is unaltered,” they said.
However, any advisers who decide to leave InterPrac for a different licensee would be subject to a significant PI run-off fee, with sources telling ifa it could be as much as $45,000.
Advisers would also be subject to a seven-year lookback of their advice files, however both the lookback and the run-off fee could be waived if the advisers move to a licensee that InterPrac approved.
Since news of ASIC’s lawsuit broke, ifa understands that a number of other financial advice licensees have been inundated with inquiries and application requests from InterPrac advisers that are heading for the exits.
However, many licensees are hesitant to bring InterPrac-licensed advisers onto their books, with some refusing to entertain applications while others take a more case-by-case approach.
In a statement to ifa, an InterPrac spokesperson said: “InterPrac confirms that it held a town hall meeting with advisers at which it discussed its position and that it would be defending the allegations from ASIC. Regarding advisers, a standard offboarding procedure is in place.”
However, the spokesperson said InterPrac was unable to comment further on the specifics due to Sequoia holding its annual general meeting on Thursday morning at 10:30am AEDT.
Earlier this week, Australian Mortgage and Financial Advisers (AMAFA) managing director Keith Marshall said licensees that rebadge commercial exit charges as PI run-off cover are eroding adviser trust and falling short of basic transparency standards.
Marshall said some licensees are misrepresenting what are effectively internal cost-recovery fees by labelling them as PI run-off premiums – despite no genuine insurance cost being triggered by an adviser’s departure.
“When licensees label what is essentially a commercial recovery fee as run-off cover, it raises questions around honesty and transparency,” Marshall said.
“Advisers are expected to be open and upfront with clients, the same principle should apply to licensees.”
Fears of Dixon-like phoenixing
Sequoia will hold its annual general meeting on Thursday morning at 10:30am AEDT, with speculation mounting that Crole will potentially step down as CEO of Sequoia at the AGM.
There has also been widespread concern that Sequoia could be looking to make a move similar to E&P Financial and Dixons Advisory, in which the parent company transferred Dixons’ advisers and client to a separate licensee and then shut the firm down.
In July 2024, ASIC confirmed that about 3,280 of the 4,100 Dixon Advisory clients had, by May 2022, moved to E&P.
Additionally, the regulator explained that between 1 January 2021 and 10 May 2022, E&P appointed 39 advisers who were Dixon representatives.
The issue reared its head again in August 2024 when a Compensation Scheme of Last Resort payment prompted ASIC to cancel the AFSL of Sequoia subsidiary Libertas Financial Planning.
Sequoia had put Libertas into liquidation in May 2023, which Crole told ifa last year had nothing to do with the CSLR.
“The Libertas AFSL was no longer viable to run, and we wrote to all advisers in February 2023, more than 18 months ago giving them a reasonable notice period the AFSL would be closed in 2023 and if they wished to join another of our AFSL they could do so but under new terms of engagement where the provision of a service was commercial,” he said at the time.
“Once all advisers had transferred to a new AFSL and there were no complaints that we believed to be still open, we appointed a receiver and asked for the AFSL to be cancelled.”
A move to transition InterPrac’s advisers and shut the licensee down would have a significant impact on the rest of the financial advice sector, with the firm facing a large number of complaints relating to its authorised representatives placing thousands of clients in Shield and First Guardian to the tune of $678 million.
While it has since ended its authorisation of Ferras Merhi and his firm Venture Egg, as well as Rhys Reilly and Reilly Financial, as of the end of September InterPrac had been the subject of more than 600 AFCA complaints in the last 15 months – and 480 this financial year alone.
If InterPrac, the last licensee that was involved in the failed funds still in operation, went insolvent, the cost of any determinations would need see the broader financial advice profession cover the costs through the CSLR.
Speaking during the Sequoia AGM, Crole conceded that InterPrac does “have some blame”, indicating that the ASIC action will result in a “potential fine and there may be some restraints put on us in the form of things like an enforceable undertaking or other actions that we have to do to maintain the licence and grow the business”.
“That is expected, but what we do not expect is that InterPrac will look to close, will look to run away from its obligations,” he added.
Speaking at the FAAA Congress in Perth on Wednesday, ASIC senior executive leader, financial advice and investment management Leah Sciacca said the regulator’s powers in a situation like this very much depend on the specifics.
“It is something that we are very much alive to, but it is case-by-case specific in terms of whether there is a regulatory intervention that is open to us,” Sciacca said.
“The way that these arrangements unfold do differ as do the facts and circumstances. But it is something that we carefully consider.”
Sequoia maintains it will defend its position
Speaking during the AGM, Sequoia chair Mike Ryan said the ASIC investigation and the Netwealth and Macquarie decisions are “serious matters, and the board is treating them accordingly”.
“The litigation is not unexpected. Shield and First Guardian have been in the public domain for over a year, and ASIC has devoted substantial resources to its investigation. In that context, formal proceedings reflect the work already undertaken, not any new development,” Ryan said.
“We will defend our position confidently and based on the facts. At the same time, our responsibility is to pursue outcomes that are sensible, commercial, and in the best interests of clients, advisers, shareholders, and staff.
“Regarding Netwealth and Macquarie who have recently advised they will withdraw platform access for InterPrac advisers early in the new year. These decisions relate to the AFSLs they choose to partner with. We are engaging directly with both groups and are working closely with advisers to ensure seamless continuity for clients.”
He said the business continues to perform strongly “despite the external issues”.
“Good governance remains central to how we operate. We have strengthened governance with the establishment of our new AFSL Governance Committee led by Danielle Press,” Ryan said.
“These issues will take time to work through, but the board remains confident in our people, our governance, and the group’s direction.”
Crole said that the InterPrac business had “without a doubt” been impacted by the Shield and First Guardian exposure.
“The adviser network is, to some degree, nervous,” he said.
“Nobody likes having an ASIC investigation. Nobody likes Netwealth or Macquarie restricting access for new business. They are not restricting business in any regard for existing business.
“We have about $1.3 billion of funds under management at Netwealth, the ongoing service fees and the ongoing support continues, and we have about $1 billion dollars of funds under advice and management.”
Crole also acknowledged that the “brand is damaged” and that the firm expects to see adviser losses.
“In my conversations with the advisers, they don’t want to go anywhere. They love us. They believe that our compliance regime is very, very strong. They believe that the support they get from our staff, the support they get from our state managers, is at the at the top end,” he said.
“What’s happening is, in the media, in the competitive market, is the noise is just so loud, the fear campaigns that are coming at our client base, our advisers, is very loud. So, it’s very challenging for them to just say, ‘Look, we’re just going to stay’. Most of them will, but there’s no doubt we will see some adviser losses … over the next 12 to 18 months.”
Interpac Advisers are forming a class action to recoup the PI run off being charged as the money is being added to the Interprac balance sheet and not paying PI.
PI renewal in Jan 2026 will unlikely be accepted by the insurer given the impending ASIC fines and likely closing on Interprac.
The run of cover is illogical as any claims relating to advise are covered by the policy in place when the error or omission occurs. Departing Interprac advisers are covered by the PI policy at Interprac at the time they are at Interprac. Once they move licensee the new policy covers acts and advice at the new licensee.
This is Gary Crole trying to get money dishonestly from advisers. It is despicable and disingenuous.