Sequoia’s clean hands message to advisers
Sequoia Financial Group has sought to reassure its financial advisers while distancing itself from suggestions it may have had links with the collapse Shield Master Fund and First Guardian Master Fund.
In a message to advisers signed off by Sequoia’a Head of Licensee and Adviser Services, the company asserted that its licensee, Interprac, was not associated with the Shield and First Guardian products or the lead generation action activity around those products.
However, the message does acknowledge that “those advisers who recommended some of these funds did acquire client leads from such lead generation businesses”.
The message to advisers comes amid continuing investigatory activity on the part of the Australian Securities and Investments Commission (ASIC) and suggests that the advisers “may have become aware of some recent negative media, and we understand this may be raised within some of your client conversations”.
It then goes on in the following manner:
To assist you with such discussions we wish to confirm
- The product failures and what appears to be serious misconduct by the fund managers and responsible entities of Shield master Fund and First Guardian Master Trust investment products have impacted many clients.
- A range of accusations in some of the recent articles attributed to the liquidators of the funds of financial irregularities or fraud within historical management and reporting of the funds will take time to accurately value the remaining assets to determine the end financial impact.
- The InterPrac licensee has been named in some of these press articles as 3 of our advice firms recommended the approved and impacted funds. Venture Egg being the business with the highest profile.
- There is also some commentary around lead generators and the role they played in this situation and Venture Egg and those advisers who recommended some of these funds did acquire client leads from such lead generation businesses.
Under the heading of “What have we done to assist impacted clients” the message says “Interprac made the decision to terminate Venture Egg and bring the client book in-house so Sequoia Financial Advice could assist clients where required”.
“We follow the requirements of our IDR and EDR obligations of complaints management. We continue to support those clients who wish to deal with us. This is an ongoing issue and will likely take a long time to play out. Multiple parties such as Trustees, product issuers, Super providers, research providers, regulators in Australia and overseas and media outlets will all be advocating their positions and sharing their opinions for some time,” the message said.
Under the heading “Was Interprac associated in any way with these products or associated with the lead generator?” the message states: “No, the products were not related to our Licensee and were accessed through a range of investment and superannuation platforms. The lead generator business was not part of our licensee.
“The funds were approved by each trustee independently and held 3.75 ratings well after Interprac removed such products form our approved list.
On occasions where we do look to remove product from our approved list despite such products from time to time holding strong independent research ratings, we do this without prejudice,” the message said.
Clean hands. A somewhat remarkable claim when you look at the facts. Interprac was, according to ASIC, one of only five licensees that placed Shield and First Guardian on their APL. They were one of two that approved both products. The other, a licensee called Financial Services Group Australia, was run by Ferras Merhi, who was an AR of Interprac. Why would they let that happen?
Now, when it comes to the business Venture Egg, a Corporate Authorised Representative of Interprac, run by Ferras Merhi, he has publicly stated that he had thousands of clients in these two products totalling at least $440m. He also ran a marketing company that was paid 10s of millions of dollars to promote Shield and First Guardian. Did Interprac know that? ASIC have sought to freeze his assets and ban him from travelling overseas. Reports of misconduct by Venture Egg, that appeared on the ABC, emerged in July 2024. Interprac moved with great pace to terminate his authorisation some 10 months later on 31 May 2025. Reports suggest that many of these clients had 80% or 90% of their money in these two products. Were they adequately diversified? Did this comply with the Best Interests Duty?
I wonder if Interprac understand their obligation to monitor and supervise their advisers. They should be looking at at least six files every year for each adviser. I wonder what they did when they saw huge amounts of money coming into Shield and First Guardian from a very small number of practices, probably as early as 2021. Wasn’t that a trigger to look more closely at what was going on?
I don’t know about clean hands, however definitely a case of three monkeys – hear no evil, see no evil, speak no evil.
Ultimately it is the licensee who is responsible for the conduct of their advisers and this one has a very bad smell.
It is impossible for a licensee to adequately monitor and supervise the actions of a third party. The whole AR/CAR model is completely unworkable in practice. The only way a licensee can properly fulfil its responsibilities is if advisers are directly employed by it. Sooner or later every large licensee with multiple ARs/CARs will come unstuck. That’s why all the majors have abandoned AR/CAR licensing, including most recently AMP. It’s also why practice equity is the new adviser control mechanism for inhouse product distribution, rather than licensing.
Surely if you add a product to your APL you have an obligation to ensure it is sound. What you are saying is a copout of the highest order and I assume you are licensed by Interprac or somehow related
Your assumption is 100% incorrect oh son of John. What I’m saying is licensees for rent like Interprac shouldn’t exist. ARs and CARs shouldn’t exist. All advisers should start as direct employees of a practising licensee, then get their own licence if they set up on their own. (You would be correct to assume I am one of those options). The licensee for rent concept is inherently flawed and unsustainable. As Sequoia investors are likely to soon find out.
So, they apparently took the products off their APL, yet failed to tell ASIC or anyone else for that matter they had concerns? I read elsewhere they then put one of the products back on. You know, you can’t have it both ways!
Clean hands is a message to suggest that if some one has done m*der then clean it up and mop it so that they are not caught like how Shield and First Guardian did
This is a very strange announcement by Sequoia and its Head of Licensee Services that will not age well. They’re unfortunately being cute with the word “associated,” claiming they weren’t involved or associated with the products’ build or management – but that’s not the issue. The real question is whether Shield and First Guardian were on InterPrac’s APL, and if they were (which appears to be the case), then it’s game over. If their representatives recommended products on their APL, then all the liability for advice-related losses sits squarely with them – it’s that simple.
What Sequoia should be doing is providing their advisers with transparent estimates of how many clients were advised to invest in these failed products and the total amount at stake. Instead, they’re attempting to distance themselves while simultaneously acknowledging that three of their advice firms recommended these “approved” funds. The fact that they removed the products from their approved list at some point doesn’t absolve them of responsibility for the period when they were approved. I’m very surprised they would make such an announcement that essentially confirms their exposure while trying to claim “clean hands” – it reads more like an admission of liability than a reassurance to advisers.
The Australian provided a contradictory article to this titled “InterPrac halted Shield and First Guardian inflows hours after Macquarie shut off.
Venture Egg, then it let First Guardian back in”. I had invested in Seq for over four years, but this issue made me reconsider my position in Seq, ethics and accountability taking precedence over money.
There are so many issues here, it’s not funny. SEQ knew their advisers were engaging marketing companies—early articles even included comments from ASIC stating that the practice wasn’t illegal. They approved a product on their APL without investigating it. Sure, smaller licensees might just accept a research rating and platform availability, but one of the country’s largest should surely be asking the product provider to disclose the fund’s exact underlying holdings. They knew their advisers used a negative consent model too.
Then they halted distribution—still without examining the products themselves—while simultaneously selling Morrison Securities for $50 million. That’s an incredible price for a business that contributed just $1.2 million in revenue. How was this deal settled? Keystone (the RE of First Guardian) loaned money to New Quantum… where did that money come from? It seems it was from the retirement savings of ordinary Australians. Did SEQ know? I hope not.
Then, once the actual holdings of Shield—and later First Guardian—became known, has SEQ made any ASX announcements regarding potential liabilities? Nope. Are they material to the market? The licensee’s PI insurance is between $20 million and $40 million, while the claims could exceed $500 million. Is SEQ now potentially insolvent, pending the time it takes for AFCA complaints to be processed?
Has this group not failed both its clients and its shareholders? Clients are right to be angry with the adviser who recommended these products, but they should be equally—if not more—outraged that a major licensee didn’t inspect the products, halted their sale without explanation, failed to alert the regulator, and then allowed them to be sold again.
The entire industry is now facing a record-setting invoice from the “peer screw-up compensation scheme” (CSLR), and a plucky law firm is likely preparing the mother of all class actions—against the research houses, super trustees, and the licensee—for negligence. If I was invested in this I would say these parties all collectively owed a duty of care, they could have reasonably exercised that duty by asking BASIC questions and getting evidence of those answers.
As for the adviser at the centre of this: either they knew what was happening with their clients’ money and will face the courts, or they were the most useful “useful idiot” in existence—making everyone else rich while no one thought to ask what the products were actually doing with clients’ money.
Everyone has spent the last 10 years clambering for independence in advice. Ironic, then, that had we remained in a vertically integrated world, there would at least be a product provider forced to stand behind the product. Now, it seems no one is responsible—it’s always someone else’s fault. Clean hands? I’ve never seen dirtier.
So my question is simple, were the funds on Interpracs APL? one question which will answer all
To answer your question — yes they were considered a suitable investment by Interprac
The ASX and ASIC should be pinging Sequoia for misleading announcements to the market.
Can I ask a basic question.. If a particular adviser is listed on the SOA as your adviser, the SOA is emailed to you using Docusign that originates from their registered Docusign account and comes from their company email address, and the same person is listed as your Financial Advisor on the platform holding the fund, their firm sends you a welcome email pledging their support with your investment, then this makes them the advisor responsible for acting in your best interests, right ?