Fisher Funds defends 'super-salary'
The offer of a so-called “super-salary” to a former Diversified Investment Strategies’ director was not intended to justify a lower sale price for the business, the purchaser has told the High Court.
Thursday, July 21st 2016, 6:00AM 
2 Comments
by Miriam Bell
Acrimonious disagreement over the circumstances surrounding the sale of DISL to Fisher Funds Management back in 2014 has left the two former directors battling it out in the High Court over the last week.
One former director, Norman Stacey, alleges that he was pressured into selling the financial advice firm significantly under market value.
He told the court he believes a Fisher Funds job offer to the other director, Vicky Watson, was the main reason for the pressure.
That job offer included a “super salary” and a “buy back” clause for Watson’s clients – which Stacey said were not disclosed to him.
However, in her evidence to the court, Watson denied that this was the case.
She told the court that her job offer was made clear to Stacey; that negotiations over the sale of DISL were all communicated to Stacey; and that Stacey did not challenge any of the negotiations.
She also alleged that Stacey had wanted to sell DISL for under market value, despite the loss to himself, largely to spite her.
Another point of contention was expressions of interest in DISL from other potential buyers, besides Fisher Funds.
Stacey said he had wanted to pursue other potential buyers further, while Watson was only willing to negotiate with Fisher Funds.
This was because she felt the negotiations with Fisher Funds had got to a point where they couldn’t morally back out of them, Watson said.
The process which led to the sale of DISL was started by the two directors’ decision to sell the company’s under-performing Law Retirement KiwiSaver fund (LRKS).
Watson said that, by the time, they began negotiations with Fisher Funds over, initially, the sale of LRKS and, later, DISL the relationship between her and Stacey had broken down.
For this reason, along with privacy issues, she did not want to communicate the details of the job offer from Fisher Funds with Stacey when it emerged.
Discussion of Watson’s “super-salary”, along with the sale price of DISL, made up a sizeable part of the hearing’s proceedings.
While Watson’s exact salary can’t be disclosed, it is closer to $200,000 annually than the $110,000 that both she and Stacey received as DISL directors.
On the closing day of the hearing, Fisher Funds chief financial officer Glenn Ashwell gave evidence about his company’s perspective of the negotiations.
Ashwell said it had never been Fisher Funds intention to offer Watson an inflated salary to make up for paying a low sales price for DISL.
He denied the salary offered to Watson was a “super-salary”.
The salary offered was relevant for an experienced and skilled adviser, especially when considering the nature of Watson’s relationship with the clients Fisher Funds was buying with DISL.
“It was based on our understanding of what a fair and reasonable salary for Vicky Watson would be.”
The “buy-back” clause included in Watson’s job offer would only kick in if she was unfairly dismissed or made redundant, Ashwell said.
Following Ashwell’s evidence, the two parties’ lawyers summed up for Justice John Faire.
Watson’s lawyer Jesse Wilson said it wasn’t a situation where fiduciary duty applied (between the two DISL directors).
Further, he said that Watson had given sufficient disclosure of her employment terms to Stacey in the course of the sale negotiations.
However, Stacey’s lawyer Paul Dale said there was a fiduciary duty which had been breached.
He said that Watson’s allegations about Stacey were not credible; that both DWML and DISL were sold below market value which Stacey was not happy about; and that Watson had deliberately not disclosed crucial information to Stacey.
Judge Faire said he would be pondering all the information presented carefully before making a decision on the case.
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Call it what it is - An inflated salary. There are other means with which to ensure client defection does not occur, such as a retention or persistency bonus at the YE. Funny that this is in the public arena though.