InterPrac endorsed ‘negative consent’ investment model for First Guardian and Shield clients
InterPrac knew the advisers at the centre of the Shield and First Guardian scandals were moving clients into investments without their knowledge or consent.
InterPrac Financial Planning knew advice firm Venture Egg was moving clients into investments without their consent and approved the practice even after supposedly putting restrictions on the advisers at the centre of the Shield and First Guardian scandals.
Concerns raised over the so-called “negative consent” model used by Venture Egg to put clients’ superannuation savings into the failed Shield and First Guardian funds without their permission were rebuffed by licensee InterPrac, The Australian can reveal.
“Please proceed with this ROA ‘negative consent’ model without further delay as InterPrac authorises this model,” InterPrac’s head of legal, risk and compliance, Justin Harding, wrote in a February 2024 email seen by The Australian.
“It’s important that members’ funds are invested as per their advice from advisers from Venture Egg and that delays do not impact the performance of their investments.”
Mr Harding was responding to concerns raised by New Quantum, the promoter of the NQ Super platform used by Ferras Merhi’s Venture Egg and a handful of other advice firms to invest client money into Shield and First Guardian.
The Australian understands the only advisers that ever used the NQ Super platform were those that invested client money into Shield and First Guardian.
The email from InterPrac’s Mr Harding directly contradicts recent public statements from the firm criticising Mr Merhi’s practices.
“InterPrac does not support the negative consent process referred to as adopted by Venture Egg and implemented by the trustees,” the company said in July.
The email also raises questions about the restrictions InterPrac managing director Garry Crole has previously said were placed on Venture Egg in 2023.
According to Mr Crole, Venture Egg and another advice firm Reilly Financial were placed on “compliance vetting” in December 2023; effectively they were no longer allowed to write new business from this time.
But advisers were still serving existing clients right up until this year. InterPrac terminated its relationship with Venture Egg in May and is in the process of terminating its relationship with Reilly Financial.
A spokesman for InterPrac said the company’s policy was “not to comment on any client’s specific disputes that are currently in progress”.
The Australian revealed in July how Venture Egg advisers tipped client money into the Shield and First Guardian Master Funds without their knowledge, listing one set of investments on statements of advice before switching investor money into the two funds which have since collapsed.
New clients of the firm were sent statements of advice confirming their super savings would be put in a variety of investments including vanilla ETFs such as Vanguard’s Australian Shares High Yield ETF.
But large portions of savings were then transferred out and placed into Shield, First Guardian and other funds, in some cases without the client’s direct consent or knowledge. Other times, it was done without the client understanding their investment switch.
The Australian has also seen emails and statements showing Venture Egg invested client super money into James Hird’s Euree Asset Management, again, without direct consent and despite statements of advice recommending other investments.
Venture Egg was using its negative consent model to put clients into Euree as recently as this year, the statements show.
ASX-listed Sequoia Financial owns InterPrac. It also has a 20 per cent stake in Euree, a multi-asset fund whose CEO is former Essendon footballer Hird. InterPrac’s Mr Crole is also a director of Euree.
The advisers used a number of platforms to invest clients into the now failed funds. But NQ Super was the only one that allowed them to send a record of advice (ROA) that included a line stating: “If we do not receive your response within the next seven (7) days the proposed orders will be considered approved, and we will proceed with the adjustments to your portfolio accordingly.”
Mr Merhi previously outlined to The Australian how his negative consent model worked, saying: “Basically, if (an adviser has) emailed and given a significant amount of time for the client to respond, and then the client doesn’t respond, then it’s consent by acquiescence, where basically you get to make the changes that you see fit for the client,” Mr Merhi said.
In August, the corporate regulator launched court action against Equity Trustees, the superannuation trustee for the NQ Super platform, for alleged due diligence failures that allowed $160m to flow into the now-collapsed Shield Master Fund in the space of just a few months in 2023.
It is the first major legal action taken against the superannuation trustees who hosted the Shield Master Fund but unlikely to be the last, with Macquarie now bracing to be next in the firing line.
The Shield fund was offered on Macquarie and Equity Trustees platforms while First Guardian was available on platforms hosted by Equity Trustees, Diversa and Netwealth.
ASIC is seeking declarations and civil penalties from the court but Equity Trustees has said it intends to defend the allegations.
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