Sequoia Financial defends adviser action on Shield, First Guardian

CEO Garry Crole says the firm took action early, but it only formally cut ties with the advisers in recent months.

Sequoia Financial has defended its dealings with the advisers who pumped clients into Shield and First Guardian.

Sequoia Financial has defended its dealings with the advisers who pumped clients into Shield and First Guardian, saying it took action early and well before the corporate regulator had any concerns about the now-failed funds.

ASX-listed Sequoia is the parent company of Interprac Financial Planning, which licensed three of the advice firms caught up in the Shield and First Guardian scandals.

Chief executive Garry Crole said new business from the advisers, including Ferras Merhi’s Venture Egg and Reilly Financial, ceased in December 2023, with Interprac concerned at the time about the high volumes of client money flowing into the funds.

“We stopped all new business completely on those platforms, not because we knew there was an issue, but because what we recognised was some of the advisers within the network looked to be having a higher allocation to funds that had less than five years track record and we wanted to know more about,” Mr Crole said on Thursday.

“Venture Egg and Riley Financial were placed on compliance vetting in as early as December 2023. That effectively ceased all new business from them at that particular time,” he said.

Sequoia Financial CEO Garry Crole.

The Shield Master Fund and First Guardian Master Fund were managed investment schemes that collapsed in the last 12 months, triggering ASIC investigations into alleged mishandling of a combined $1bn in investor money, much of it now feared lost.

“We were very, very early, and that was well before ASIC or the regulators or any parties felt that there was an issue with Shield or First Guardian,” Mr Crole said.

The corporate regulator put a freeze on investor fund flows into Shield in February 2024 but had been surveilling the fund since at least mid-2023.

An investigation by The Australian revealed in July how InterPrac ordered all client inflows into First Guardian and Shield funds to cease in July 2023 but removed the suspension on First Guardian two months later.

Mr Merhi and his advisers were responsible for more than 6000 of the total 12000 clients put into the two funds over a two-year period, The Australian understands. In that time, he was paid tens of millions of dollars by First Guardian to market the fund to new investors, the regulator alleges.

InterPrac only formally cut ties with Venture Egg in late May and with Reilly Financial this month.

Mr Crole made no mention of the third InterPrac-licensed fund involved, Miller Wealth, which moved $50m of clients’ money into First Guardian over the space of a month in early 2022, as revealed earlier in August by The Australian.

Mr Crole also left out how InterPrac has challenged the Australian Financial Complaints Authority’s jurisdiction in these cases and disputed that poor advice was given to clients, also revealed by The Australian this month.

He said the firm was supporting clients involved.

“We empathise with the clients who have investments on platforms within Shield and First Guardian. Clearly, it’s not something that we saw coming … it is our belief that there’s protection under APRA-regulated superannuation funds that we are looking to discuss with those members.”

Super trustees including Macquarie, Equity Trustees, Netwealth and Diversa gave the go-ahead for Shield and First Guardian to be placed on their platforms, which are used by advisers to invest client money.

ASIC this week launched court action against one of the super trustees, Equity Trustees, 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.

Macquarie is bracing to be next in ASIC’s firing line.

But investors hoping to take action against the super trustees through AFCA, the complaints ombudsman, are likely to be left disappointed. AFCA has already been knocking back such claims against the trustees, telling affected investors its rules prohibit it from investigating management of a fund, including due diligence.

“We are aware there are many individuals concerned about how to access redress in relation to the First Guardian and Shield Master Fund collapses. We are continuing to look at this situation, and we are engaging with relevant regulators about actions they are taking,” an AFCA spokesperson said.

“This is a complex situation due to the many entities involved, the corporate structures and interrelationships between some of these entities, and their respective responsibilities and obligations to the consumers they served.”