Sequoia has found a buyer to offload its troubled InterPrac licensee to, collecting just $50,000 in the sale, with its new owner looking to stabilise the sinking firm.
Conquest Investment Partners has agreed to acquire InterPrac Financial Planning from Sequoia Financial Group for $50,000.
On 20 March, the ASX issued a trading halt for Sequoia shares in anticipation of the divestment.
The licensee has been reeling for months following the collapse of the Shield and First Guardian Master Funds, with its authorised representatives advising around 6,843 clients to invest around $677 million of their superannuation into the funds.
Despite concerns among the financial advice sector that Sequoia would follow the model of Dixon Advisory and transfer its advisers to a different licensee within the group to avoid liability for client losses, the company has instead opted to sell the business for cents on the dollar.
Speaking with Money Management’s sister brand, ifa, chief executive Garry Crole said that the parent company would have to write down a considerable amount on its balance sheet following the completion of the sale.
“I think it’s important that Sequoia has taken its medicine by writing off $11 million dollars,” Crole said.
“Because InterPrac is no longer going concern for us, that put us in a position where it’s very difficult for us to support the remediation fairly, but someone who’s got an ongoing business that can support that properly, I think is better. I think that’s important.”
At completion of the deal, InterPrac retains about $7.5 million in cash and liquid investments, alongside a $20 million PI insurance policy.
Money Management understands that there had been other offers from interested parties, with some seeking to go down the phoenixing route, however Conquest aims to operate and stabilise the business, not dismantle it.
InterPrac director and head of legal at Sequoia, Justin Harding, is understood to be moving across as a director of the business.
Crole added that selling InterPrac to Conquest was the best option for both shareholders and the impacted clients.
“I just want to act in the best interest of the people who have lost their money with Shield and First Guardian, to be honest, because we’re not in a position to repay them. If AFCA’s unfair, it just goes to the CSLR, and that’s limited to $150,000 each,” he told ifa.
“I think there still needs to be pressure on the platforms to repay the capital that haven’t already and a fair compensation for the lost interest … is what I would like to see. I’d like to see them get their money back and hopefully this is a catalyst for some of that.”
Earlier this month, InterPrac launched its own legal action against the Australian Financial Complaints Authority (AFCA) over a lack of fairness in its process relating to Shield and First Guardian complaints.
InterPrac is facing around 800 complaints so far in relation to the failed funds – a number that could continue to climb – and the external dispute resolution body released a lead decision for complaints against the firm in February.
“We’re of the belief that members will be best served if all parties can be part of the solution, rather than what AFCA is attempting to do, and that is put everything against the adviser and nothing against any other party, which basically sends everything to the CSLR and is bad for the industry,” Crole told ifa at the time.
While it is unclear whether Conquest will continue to pursue the matter, Money Management understands that Harding was an advocate of the legal action against the complaints authority.
Earlier this week, it had flagged that it was in “advanced discussions” over a potential sale of InterPrac.
“As previously disclosed, a number of investment platform providers have undertaken reviews of their relationships with AFSLs owned or controlled by Sequoia,” it said.
“Following earlier decisions by Macquarie Group and Netwealth Group Limited, additional platform providers have indicated that they are reviewing or reconsidering their arrangements with certain AFSLs within the Sequoia group.”
The growing number of platforms that had placed restrictions on InterPrac advisers, with HUB24 the latest to halt new business, had made it’s operation under Sequoia unsustainable and saw the business bleed advisers.
According to the most recent Wealth Data numbers, Sequoia had lost 57 advisers since the start of the year, with that number sitting closer to 80 in the last six months.
In November last year, the Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings against InterPrac, including seeking orders to restrain the licensee from carrying on a financial services business.
In its filing to the Federal Court, the regulator alleged that “thousands of Australians were exposed to poor financial advice and significant risks” from the Shield Master Fund and First Guardian Master Fund through “critical oversight and compliance failures” by InterPrac.