“I think clearly the management of First Guardian and Shield are to blame,” Sequoia managing director Garry Crole said in an interview with ABC over the weekend.
While few would disagree with this sentiment, some of Crole’s other attempts to distance his firm from blame in the scandal might be met with more scepticism.
In the interview, the licensee boss stressed that InterPrac’s oversight of its authorised representatives was robust and it had received “no complaints whatsoever from any member in respect to the advice until after the failure of the funds”.
“Our oversight model is to, in respect to the advisers that we’re talking about, is we look at the statements of advice that they give, we look at the recommended products that they make,” Crole said.
“We require them to do ongoing training on a regular basis. In all cases those advisers were doing that.”
Noting that InterPrac had stopped new business in the Shield and First Guardian funds in December 2023, “well before there was any discussion that there was something wrong with those funds”, he said the licensee had increased oversight on Venture Egg and Ferras Merhi.
However, Crole denied that there was any cold calling or conflicted remuneration involved in the advice process.
“I want to make the point there was no cold calling,” he said.
“So, you know, the press and some of the interpretation about cold calling is not correct. Every member that went to Ferras or Venture Egg went onto a website from a marketing company who said, ‘Are you unhappy with your super etc’.
“They completed activities to get details of those clients, and those clients then requested somebody to call them, and that’s when a Venture Egg or another client of these marketing companies would have called them. So, there was no cold calling whatsoever, but we were checking in on that.”
However, Crole failed to mention that Merhi himself controlled one of the lead generation companies, though the former adviser claimed on Channel 7’s Spotlight that he never actually received any of the $19 million paid to his marketing firm, claiming that “most of that money is with Google and Facebook”.
“I didn’t pocket this money. It’s not in my pocket. It’s money that was spent on these ads that were being put onto these platforms. They have most of that money, not me,” Merhi said.
Crole also revealed that his company has statutory declarations from Merhi that state he “was not receiving conflict of remuneration of any kind”.
“We didn’t receive any conflicted remuneration. In fact, we took steps to stop it,” he said.
Despite taking action to halt new business being put into the now failed funds, Crole said he believed the high volume of flows into the products was simply a consequence of Australians being “unhappy with the superannuation system”.
“What I thought at the time was that those lead generators were finding people who are unhappy with the system and selling leads to advisers, and advisers would then give them appropriate advice. I thought that was good,” he said.
‘We don’t approve negative consent’
The reports of so-called “negative consent” being utilised among InterPrac advisers caught up in the collapses, in which the client was emailed a record of advice that said no response within seven days would be considered consent, Crole was firm that the licensee did not approve the practice.
“The trustee did that. We did not do that. So, this happened in New Quantum’s case. New Quantum did that. They did not seek our approval. We did not know about this until after the event,” he said.
“Recently, they decided to ask us for that, and we did it on a one-off basis … after Shield and First Guardian had fallen. What happened is the client’s money could not go into Shield because it was closed so cash was building up. That’s inappropriate for the client. They had other portfolio investments, and we did approve it on one-off case, but the clients received a record of advice saying, ‘This is what we’re doing. It’s in your interest to do that.’
“If we didn’t do that, their clients sit in cash … it is in their best interest to be invested in the advice that they were given.”
What is clear from Crole’s explanation is that, whether InterPrac was aware of the negative consent practice from advisers it authorised or not, the advisers had utilised the method.
As the licensee had “increased oversight”, as he earlier argued, the licensee would still be liable for its advisers failing to obtain informed consent.
Despite this and the corporate regulator describing much of the advice related to Shield and First Guardian as “cookie-cutter”, Crole maintained: “If the fund had been as it suggested it was, [the advice] would have been appropriate.”
He even argued the super fund trustees had not let anyone down, rather they had been “deceived”.
“I think the superannuation system in Australia is the best super system in the world. What I’ve been talking about of my recent time talks to that. But no, I don’t think the super trust leaders have let people down.”
It’s all over the press that Macquarie has admitted to breaking the Corporations Act. ASIC are suing Equity Trustees.
Their lack of oversight has caused all the losses here. If Macquarie and Equity Trustees want to sue SQM Research into oblivion for their negligent investment ratings of not only 1 but 2 failed funds, then that’s their fight.
Same old story, finger point, deny, move on. Innocent Aussies and the rest of the FP industry footing the bill.
Why do licensees have anything to do with an adviser’s investment recommendations? We are fed all the BS about removing conflict of interest when licensee’s can indirectly force you into their own products. Wake up ASIC. Conflict of interest has been flipped on it’s head – instead of directly incentivising you into a product, licensee’s indirectly make your life hell if you choose to avoid their products. It isn’t rocket science to me, licensee and product shouldn’t co-exist. ASIC must know the extent that this is going on across the industry.
Having seen the “appropriate” advice that some of these victims received, I can say just lock all of them up and throw away the key; advisers, licensee, trustee.
As a victim of this collapse, i can categorically say that I DID NOT fill out a requested tobe called back by a super comparsion company. AGAT Cold called me, i also have messages showing the prssure tactics. This denial is mind-boggling to me. Further to this, to state there was no conflicted renumeration is odd, considering Merhi’s company was marketing the funds, how under Garry’s definition is that not conflicted?
Surely the members must be compensated all losses, interest, opportunity losses and for their immense stress over the lack of Interprac doing their duty! We’re tired of hearing the one party blaming the other. The government can’t expect citizens to trust super if its regulator is also failing to do their job! Compensate members as the longer this drags out, the bigger the mental damages on members. You got people facing retirement with significant uncertainty due to a gigantic failure of oversight.
Abdicating responsibility or blaming others will not change what is coming. Perhaps this interview will force ASIC to move faster. The tragic outcome is staff at Interprac will be tarnished and may find getting a new role much harder. Advisers under Interprac may find moving to a new licensee a challenge too. ASIC must do better and perhaps employ people with real knowledge and understanding of how the advice industry really works.
While he is not wrong about being deceived by the fund managers, he is clearly trying to paint Inteprac as innocent bystanders.
While that may or may not be the case, if the Super Trustees don’t come to the party in terms of compensating clients (which I don’t believe they have to), the cost will fall on Interprac.
It is hard to see Interprac survive this…which then leads me to wonder if Sequoia will put Interprac into administration and pass the cost burden to the rest of the advice industry.
We all know that they are getting ready to torch Interprac.
Walk away from liabilities.
Illegally Phoenix advisors & clients to Sequoia.
Illegally Phoenix an assets Interprac have or are owed.
Seems like any business in such a situation would silly not to follow the Dodgy Dixon’s process.
Given ASIC did nothing about Dodgy Dixon’s, if they do stop or charge Sequoia / Interprac for such actions then it will open more questions why it did t do same for E&P
Phoenixing advisers & clients & assets is not illegal. It is unethical, and a moral hazard that incentivises consumer harm. But bizarrely quite legal. Regulators and politicians don’t care because financial advisers will be forced to pick up the tab through CSLR.
There will be no action to fix these outrageous distortions in the law until the honest majority of financial advisers have been pushed out due to the unaffordability of CSLR. Regulators and politicians think it’s more important to eradicate all financial advisers, than to prevent consumer harm.
As financial advisers, we often desire full autonomy in running our practices with minimal interference from compliance. However, we are quick to point fingers at compliance when we see other advisers taking shortcuts.
Take, for instance, the two Interprac advisers who were terminated when concerns were raised and statutory declarations were requested. Those declarations, unfortunately, turned out to be false.
It’s time we stop shifting blame and start taking responsibility for our own actions. If we truly want to be regarded as professionals, we need to hold ourselves accountable.
I agree.
however there has to be a ban on in house products and vertically integrated models.
someone else down the track will purchase a database and market their own products and it will back to future once again.
incompetent goverance at it again.
I, and others I know, absolutely received unsolicited phone calls from these crooks – never have I so much as stepped foot toward a website stating I wasn’t happy with my super.. the telemarketer was aggressive and pushy and suggested my fund (which I advised her I was in) was underperforming! I am in the industry so asked if they were aware of cold calling laws – she hung up on me. Disgusting state of affairs all around. And negative consent is brazen by even these cowboy’s standards!
I never clicked a button indicating I was unhappy with my super. I received a call telling me my super can perform much better. Next minute Venture Egg had a SOA in my inbox to sign with a Macquarie Wrap account.
Or not sign – same outcome apparently! I hope it turns out well for you (assuming your super was moved)
Where did they get the detailed personal information from to prepare an SOA?
These portfolios were mostly mixed with a conservative and high growth fund with shield or first guardian, no other funds. If there were other funds included they were invested in obscure etfs like semi conducter or bio tech etfs. So really it was like a person throwing darts at a dart board and picking the etfs to back up these so called diversified funds.
So it was the lack of diversification in the portfolios that did this! Why would you allocate 50% to a conservative shield fund, and 50% to a high growth shield fund and leave it at that? This is how most of them were invested, too much exposure to one fund manager.
Now you need to ask why was there so much exposure? Theres only one awnser, the advisers were tainted by greed and must have been receiving something in exchange for putting all these clients into these funds.
He has guts telling this story to the press, but at the end of the day the dealership is responsible for this advice, and the advice wasn’t in the clients best interests!
So they need to pay, firstly for the outrageous fees they charged which the dealership would have seen and then for the losses the clients have experienced.
No weasling out of it by acting all bravado on mainstream media, oh it was the super funds fault, well no it wasnt. it was the people that made the recommendations, and those that allowed those recommendations.
AFCA will make the last decision here anyway no matter what anyone says. It will come out in the wash.
the two advisers (falsely) signed a stat dec to their licensee saying they DID NOT receive the “outrageous fees” you mentioned.
You don’t need to be sherlock Holmes to look at a client’s statement and see the fees, why would they need a stat dec when the licencee has access to that info via the renumeration reports at least .
The afca determinations will soon bring it all out into the open.
I really wonder what supervision was provided by the dealership from a compliance point of view this is the most worrying part as they are the final gatekeeper and seemed to miss all of this. There were red flags everywhere.
If buck passing was a Olympic sport everyone involved in this mess would be going for gold.
Not advisers fault but they made good money out of it
Not telemarkets fault but they made good money out of it.
Not interpracs fault but they made good money off it.
Not platforms fault but again they made money off it
Not sqm research fault but they made good money out of it
Anyone that made money out of it is part of the chain, and needs to take some blame.
They are all gutless cowards scrambling to blame the next person.
In the meantime these poor clients are really suffering
So wrong
Were the frontline advisers tainted by greed and receiving something in return? Or were they just doing as instructed by the practice owner, within the compliance and investment guidelines of the licensee?
Employed advisers have very little power to stand up to practice owners or licensees. They risk losing their job, having references withheld, or being reported to ASIC as part of a weaponised compliance program. And after all, they are usually the junior person in the arrangement and assume their betters know best.
The current licensing structure based on CARs and licensees makes junior advisers powerless pawns that can be easily exploited. Blaming them is a regulatory cop out and total injustice. There needs to be much more blame and punishment directed at the real perpetrators. There also needs to be an overhaul of licensing laws, which allow product companies and dodgy crooks to wield enormous power over well intentioned advisers.
Hmmm. If Merhi & co weren’t receiving conflicted remuneration, why did they funnel so much money into obscure, opaque funds with minimal track record? There are hundreds of other far more reputable funds they could have chosen, with better past performance than the clients’ super fund they were being switched out of.
And how could any licensee regard boilerplate advice that funnelled so much money into obscure, opaque funds with minimal track record, as “appropriate”?
There may not have been any documented transactions that fell within the strict legal definition of “conflicted remuneration”, but it seems there must have been some sort of benefit flow from the fund managers to the advice practices and licensees.
My guess is that Sheild and First Guardian agreed to pay the “marketing fees” incurred by Venture Egg. So in effect “free marketing” to funnel people into their products. A “commission” for all intents and purposes to fund the gravy train of licenced advice fees charged to switch super and then the ongoing advice fees that were being charged for cookie cutter product flogging. As you point out why not just run the same model with reputable fund managers and asset consultants…answer – they wouldnt pay the marketing fees incurred by Venture Egg.
I think you may be onto something there. A related hypothetical question might be why don’t lots of other small financial planning firms run the same model, but using reputable funds and best interest advice? The answer is likely to be the marketing costs are so high, it would be too hard to recoup them and make a profit from the advice fees. High volume, high presence, online advertising integrated with a call centre is expensive. Conversion rates are generally less than 1% of clicks, so there is a lot of buck for not much bang. But 1% conversion rates aren’t a problem if someone else is paying for the marketing. Unless of course the quid pro quo is being bound to a specific recommendation of a dubious product.
So rapid increases in massive volumes of superannuation transfer business over a short period of time into only 2 products with hundreds and hundreds, if not 1000’s of SOA’s is ok because it was a consequence of people being unhappy with the superannuation system ?
You would have to think that because there were “no complaints whatsoever from any member in respect to the advice………” is simply because every single client thought they were receiving personalised advice specific to only them.
Naturally, every single client would have no idea of the advice that 1000’s of others may have been receiving at the same time.
The question is in relation to the 1000’s and 1000’s of SOA’s or ROA’s irrespective of the client’s situation or financial position being noted and identified is whether there is a consistently similar and repetitive format of advice that was provided to each and every one of these clients.
Crole knew where his authorised repsentative advisors were getting the leads from, as they owned them.
Many advisors under InterPrac will confirm they are never audited, or not for up to three years, so InterPrac turned a blid eye because they and the advisors were making lots of money, many many millions. How can a financial planning business deliver 3,800 Statements of Advice (SOAs) over 3-4 years, without a “boiler room” set up and the licencee not notice?
Many investors never spoke with their advisor at Venture Egg and others, as the tele-marketers at the call centres were delivering the SOAs.
Claiming that 10,000+ investors were unhappy with the superannuation system is a lie, greed drove his advisors and InterPrac to funnel people into dodgy Super Funds with dubious finanacial statements.
What about Mr Crole’s suspect internal share portfolio and the alledged insider trading between the fund and their owner Sequioa to generate impressive returns, will ASIC look into that as well?
Crole is a frog in boiling water, just look at his body language. He’ll get his day and most likely that will be the end of his career. His Board members must be wondering how in denial can 1 person be. No wonder some Board members already resigned to spend their time on other matters. They know what’s coming and they can only hide that long before ASIC run them to court.
How do the staff at Interprac and Sequioa sleep at night? Blaming everyone else but their own authorised representatives who enabled this disaster to happen? Unbelievable!
Wait until the make some sneaky moves to avoid paying compensation to the 12,000 investors.
But you licenced Imperial Capital as a CaR and its employees did the cold calls. You audited the calls and found they were providing advice! and you let they continued to allow them to give unlicenced advice!
Wasnt the Compliance head paid by Ventrue Egg?
Time to fess up!
Yeh Nah, Interpracs AFSL compliance doesn’t pass the pub test.
Yes, no, gosh you sound so very edumacated.
Crole, I don’t think anyone is arguing that the Sheild and First Guardian Fund Managers are to blame for the fund collapse. However, Interprac is ultimately responsible for the advice provided and there should indeed be scrutiny placed on your AFSL for oversight responsibilities. Also, If the Advice and Advice process were compliant why de-register Ventre Egg and Merhi?
Not to mention Rhys Reilly