Sequoia facing $22m in complaints on the back of fund failures

Sequoia Financial Group has revealed the scale of complaints lodged with the Australian Financial Complaints Authority (AFCA) relating to its role in the Shield Master Fund and First Guardian Master Fund collapses.

In its full-year results announcement on Thursday evening, Sequoia said there has so far been a total of $22 million in complaints against InterPrac Financial Planning over advice that its authorised representatives had provided.

“This represents InterPrac’s potential exposure prior to any assessment of the merits of each complaint, and before consideration of any recoveries or offsets,” Sequoia said.

While $22 million is a considerable figure for complaints against a single licensee, it is far from the full extent of the possible claims that InterPrac could face.

Ferras Merhi and his advice firm Venture Egg Financial Services were both authorised representatives of InterPrac until the end of May this year, when the licensee cut ties.

According to Merhi’s previous media comments, Venture Egg has about 5,000 clients with $250 million in Shield, and 3,600 clients with $192 million invested in First Guardian, putting the total exposure for clients to over $440 million.

However, Venture Egg isn’t the only InterPrac-authorised advice business that is on the regulator’s radar, with both Reilly Financial and Miller Wealth Group advising clients to invest in one or both of the funds.

According to Sequoia, the ultimate outcome will depend on a range of factors, including AFCA’s determination of each complaint, recoveries from the receivership of the funds as well as third parties, including auditors and superannuation trustees, the application of professional indemnity insurance from relevant parties, and existing legislation that protects members within the superannuation framework.

“AFCA has advised that the complaints remain at an early stage, that each complaint will be considered on its own facts and circumstances, and that no view has been formed on the merits of any complaint,” the firm said.

It also used the results release to announce a client support and assistance service that includes a “dedicated team of salaried advisers and support staff to work with clients previously serviced by Venture Egg and Rhys Reilly”.

“We recognise that the receivership of the Shield Master Fund and First Guardian Master Fund is causing significant distress for affected members. These developments are deeply concerning,” Sequoia said.

“We remain confident in the strength of Australia’s superannuation system, particularly the large platform market which is designed to protect members’ interests and deliver fair outcomes which offers both choice and member protections.”

The team will provide “appropriate guidance, information, and support” to members, the firm said, adding that it is also set to distribute a client information support package in the next fortnight.

“This package will outline the steps we are taking in collaboration with relevant authorities, superannuation funds, and government bodies to help identify and facilitate appropriate outcomes wherever possible. InterPrac remains fully committed to supporting every affected client to the best of its ability,” it said.

The news follows Sequoia establishing an AFSL governance committee, which includes former ASIC commissioner Danielle Press coming on board as independent chair.

“This new committee reflects Sequoia’s ongoing commitment to the highest standards of regulatory alignment, governance maturity and risk management,” the firm said in a statement last week.

“It introduces an elevated and independent governance layer above the operational compliance structures of each AFSL and will in conjunction with the executive report to the SEQ boards risk and compliance committee.”

Alongside these moves, Sequoia continues its efforts to extricate itself from the Shield and First Guardian scandal, with InterPrac planning to cease its authorisation of financial adviser Rhys Reilly and his firm Reilly Financial.

“All advisers have their own investment committees and InterPrac does not influence their choice of investments. InterPrac is in the process of terminating its relationship with Reilly Financial,” a spokesperson told ifa.

It is unclear at this stage whether InterPrac is also planning to stop its authorisation of Reilly’s other firm – The Life Insurance Company – which only kicked off in May this year.

Reilly is already showing as having dual authorisation on the Financial Advisers Register (FAR), joining Conexus Group as of 5 August, despite the licensee not authorising a financial adviser since January 2024.

Two other employees of Reilly Financial are also shown as authorised representatives of Conexus Group, however, neither are on the FAR.

The firm did not confirm whether this action would extend to Miller Wealth Group, however Miller has shut down its website and is listed as permanently closed. Both the firm and its advisers are current on the FAR and still authorised under InterPrac.

Fund failures haven’t dinged financial performance

Despite the turmoil facing Sequoia over the last year, the firm has enjoyed a solid second half as revenue hit $124 million for FY2024–25, $114.3 million of which was attributed to its licensee services division.

“The consolidated group EBITDA increased to $9.9 million with improved margin of just below 8 per cent,” it said.

“The board intends to declare a fully franked final dividend of 2.0 cents per share, bringing the total FY25 dividend to 4.0 cents per share all 100 per cent franked. A payout of approximately $5 million of annualised fully franked dividends reflects the group’s strong underlying business fundamentals.”

Sequoia also further addressed the trading halt from late last month, which came on the back of large volatility in its share price on the ASX, suffering a steep decline of around 30 per cent in a single day, dropping from $0.34 to $0.24 – its lowest price since 2020.

The exodus included The Australian Wealth Advisors Group (AWAG), which disclosed on 30 July that it has sold off the vast majority of its remaining holding.

On 15 July, AWAG disclosed it had reduced its ownership stake in Sequoia from 18 per cent to slightly above 15 per cent.

While AWAG did not wish to comment on its individual trading decisions at the time, a spokesperson for the firm told ifa that there are “challenges ahead” for Sequoia.

The latest move saw AWAG sell shares equating to around 12 per cent of Sequoia, dropping it below the 5 per cent benchmark to be considered a substantial holder.

AWAG had only bought into the firm in February.