ADVOCACY CASE STUDY 

Financial adviser leads clients into unwanted debt

BACKGROUND
The SR Group represents a group of 116 individuals and entities, each of whom was a client of disgraced Sydney based financial adviser. The financial adviser advised each of their clients to invest in the a managed investment scheme, without regard to each individual’s needs, wants or desired investment outcomes. The financial adviser did so without disclosing their close relationship with the managed investment scheme or the exorbitant commissions they received for promoting the scheme.
The financial adviser also utilised their industry connections to assist their clients in taking out investment loans with a financial institution to maximise their upfront investing ability (which in turn increased the fees they received!). The financial adviser induced clients into these loans by describing them as ‘non-recourse’, meaning they were secured against the investment asset only and not enforceable should the investment fail.
The  financial adviser related investment scheme would ultimately collapse, and the financial institution that provided the financial adviser’s clients with investment funding began demanding full repayment for the investment loans, while applying exorbitant interest.
​Despite the financial adviser’s assurances that loans were non-recourse, the loans continued to be pursued ruthlessly while the financial institution threatened investors with bankruptcy and dispossession. The financial adviser continued to advise their clients throughout the collapse of the investment scheme in an attempt to mitigate losses, but every instance of the financial adviser’s advice seemed to cause more detriment than benefit. The financial adviser had taken their clients from a position of financial health into considerable (and mounting) debt in a matter of years.
ACTIONS TAKEN TO ASSIST FINANCIAL ADVISER INVESTORS
  • Formed a victims group to collectively represent affected victims of the financial adviser related investment scheme;
  • Created forums and distributed newsletters to enhance communication with and between group members;
  • Negotiated with the financial institution that provided investment funding to achieve varying levels of debt relief and moratoriums;
  • Facilitated and assisted the group in obtaining legal representation to take their matter through the courts;
  • Facilitated media coverage for the group members to maximise publicity;
  • Prepared and lodged claims on behalf of group members with financial adviser’s Professional Indemnity (PI) insurer;
  • Prepared a submission to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on behalf of group members; 
OUR RESULT 
Our negotiations with the financial institution have prevented the vast majority of our clients from entering bankruptcy. Our claims to the PI insurer were successful, though the total value of claims against the financial adviser’s PI insurance exceeded the level of funds available through the PI insurance. As such, claims have been paid on a pro rata basis, in which each successful claimant received a percentage of their claim proportionate to their claim Whilst this represents some redress to investors, the SR Group is determined to seek full compensation and continues to seek recompense of the outstanding monies lost through the Royal Commission.