InterPrac hits advisers with huge exit fees amid black-list from major platforms
Financial advisers have slammed InterPrac’s move to hit them with huge fees as they try to exit the firm that is facing court action and bans amid the Shield and First Guardian scandals.
Financial advisers have slammed InterPrac Financial Planning for its move to charge hefty fees to those looking to escape the under-pressure licensee.
Advisers operating under InterPrac’s licence have been told they must hand over a lump sum equivalent to at least two years’ worth of professional indemnity (PI) cover before they can leave and go to another licensee.
In some cases, this one-off ‘exit fee’ could run to between $50,000 and $100,000, industry sources said.
If they don’t pay, the advisers will be able to walk out the door but won’t get the tick of approval needed to take their client books with them, sources said. Advisers have also been told they can avoid paying the fee if they go to a licensee approved by InterPrac.
One adviser who spoke to The Australian on condition of anonymity said there was no valid reason InterPrac would need two years’ PI run-off cover, but that the cost to advice firms would make it difficult for larger, more profitable operators to leave.
“It’s not a legitimate payment because it’s not a real cost to the licensee. When an advisor changes to a new licensee, the liability moves across as soon as they do a review with their client, and that doesn’t take two years to do,” the adviser said.
InterPrac is demanding advisers pay the PI run-off fee as the corporate regulator sues the firm over its alleged role in the Shield and First Guardian scandals. At the same time, hundreds of Shield and First Guardian investors have submitted complaints about InterPrac to the complaints ombudsman.
InterPrac has been at the centre of the Shield and First Guardian failures but just a handful of the 230 advisers operating under its licence recommended the two funds to clients.
For months, InterPrac told its advisers the scandal would blow over and there was nothing to worry about. The true impact became very real last week when all InterPrac advisers were black-listed from major platforms Macquarie and Netwealth right as ASIC took court action against the licensee.
Netwealth ban on new business
Netwealth’s move to ban new business from InterPrac advisers came a day after the licensee issued a statement pointing the finger at Netwealth and calling for the super trustee to make First Guardian investors whole via its operational risk reserves. Netwealth has about a $100m exposure to First Guardian.
“InterPrac Financial Planning Pty Ltd (InterPrac) have investigated activities that resulted in the investment options within your Netwealth Super fund being switched into the First Guardian Master Suite in 2022,” InterPrac said in the letter issued this month.
“On or around April 27, 2022, Mr Clint Miller accessed the Netwealth Super internet portal and switched your investments from the investment options you had invested in at that time, on previous advice from an authorised representative of the Miller Wealth Group, into the First Guardian Master Suite,” the letter said.
Mr Miller was the principal of Miller Wealth Group, one of three InterPrac advice firms whose clients were invested in Shield and First Guardian.
“Mr Miller was not an authorised financial adviser at any time after the 22nd of December 2021 and did not have the required authority to make this transaction,” the letter said.
“InterPrac have notified Netwealth of Mr Miller’s unauthorised conduct on their platform, and on your behalf, we have formally requested Netwealth access their Operational Risk Reserves and restore your superannuation account in full.”
The Australian does not suggest that the allegations made in the letter are true, only that they were made by InterPrac.
An investigation by The Australian revealed earlier this year how $50m of investors’ money was quietly moved into First Guardian in April 2022 as part of a $1.5m deal.
In a statement to The Australian, Mr Miller’s lawyer suggested InterPrac would have known about the transfer at the time since both Miller Wealth and Venture Egg operated under its licence.
Mr Miller’s lawyer also said Mr Miller was acting on Venture Egg’s instructions “after the completion of the sale” of the investment book.
InterPrac drags its feet
For advisers looking to walk away from InterPrac now, the exorbitant ‘exit fee’, which was put in place last year, is not the only hurdle they face.
Advisers say InterPrac is further delaying the exit process, particularly for higher-revenue financial planners, as it drags its feet on the steps required to move a client book from one licensee to another.
Following Macquarie and Netwealth’s move to block InterPrac advisers, at least two other platforms are now considering whether to impose a similar ban, The Australian understands.
One adviser who spoke to The Australian on condition of anonymity said he was embarrassed to be associated with InterPrac and questioned how he could serve new clients’ best interests if platforms keep cutting him off.
“I’m still working out what my next steps are but I’m certainly now feeling that remaining with InterPrac is unsustainable,” he said.
Addressing shareholders at InterPrac parent company Sequoia’s annual meeting this month, InterPrac managing director Garry Crole, who also serves as Sequoia’s chief executive, said he expected to see some adviser losses from the business. In the same breadth, he said many advisers want to stay with the licensee.
“In my conversations with advisers, they don’t want to go anywhere. They love us, they believe that our compliance regime is very, very strong...but there’s no doubt we will see some adviser losses,“ he said.
AIOFP rails against platforms
As some InterPrac advisers look for the exit, the association for independent financial planners has railed against Macquarie and Netwealth for banning InterPrac-licensed operators, comparing the move to the 1816 Appin Massacre.
“There are similarities with what Governor Lachin (sic) Macquarie did in on the 17th April 1816 to Aboriginal people at Appin to what Macquarie Bank/Netwealth are trying to do to InterPrac advisers and parent Sequoia Ltd,” Association of Independently Owned Financial Professionals executive director Peter Johnston wrote in a letter to advisers last week.
InterPrac’s Mr Crole is a founding member of the AIOFP.
“Governor Macquarie ordered the mass murder of 17 Aboriginal people at Appin and ordered their bodies to be hung from trees to intimidate anyone who disagreed with their rule – an outrageous and ruthless action,” Mr Johnston wrote.
“Today Macquarie/Netwealth are trying to spin the blame of their involvement with the Shield/First Guardian fiasco onto the adviser profession by disadvantaging 235 advisers and trying to trash the InterPrac/Sequoia reputation in the market – an outrageous and ruthless action.”
Mr Johnston called on advisers to boycott the platforms, which he described as ‘bullies’ until they reverse their decision.
“The adviser profession should push back as a matter of principle and put these institutions in their place,” he said.
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Originally published as InterPrac hits advisers with huge exit fees amid black-list from major platforms
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