Advisers ahead of clients in LM liquidation line Peter Drake of LM Investment Management. Financial advisers who put their clients into LM Investment Management's since frozen funds stand to collect millions in commissions before their clients see any return. A report from the administrators of the ill-fated mortgage empire shows $10 million in claims for financial advisers. It is a cruel irony for the investors themselves, who have lost money in the collapse yet have not been deemed to be creditors. As revealed in BusinessDay on Monday, the founder of LM, Peter Drake, had taken at least $46 million in loans before the group collapsed earlier this year. The loans have not been repaid. Thanks to the Drake loans, escalating management fees before the collapse, and now the feeding frenzy by the administrators and litigation, the prospective returns for investors is diminishing with every week that passes. Since the collapse in March, administrators FTI Consulting have charged $2.4 million in fees, or $130,000 a week. The administrators are seeking to recover funds from Peter Drake. Despite the ravages of the global financial crisis, Peter Drake was able to keep marketing worldwide and raising more money for the LM funds until 2012. Unfortunately for his investors - as opposed to their financial planners, who were on commission of at least 3 per cent of their clients' savings - the fund's fees were too high. And a good deal of the fees was "pre-paid"; paid up front, that is. LM Administration (LMA), which is the vehicle from which Drake took the greatest personal benefit, and of which he was sole director and shareholder, received $14 million in "pre-paid income" from six LM funds, including the flagship LM First Mortgage Income Fund. In 2010 and 2011, even as his funds were frozen, the gross income of LMA increased by 118 per cent, from $9.5 million to $20.8 million, "mainly due to a 200.49 per cent increase in management fees." Through the circuitous corporate structure of LM, fees were paid from the funds into LM Investment Management, the responsible entity. Much of this was then passed through to Drake's LMA via service agreements. LMA, in turn, lent Drake $30 million. He also drew a $16 million loan straight from one of the funds, the Managed Performance Fund, into his Hong Kong company, Century Star Investments. CSI, in turn, is a major shareholder in LM. Loans were also made from the funds to companies controlled by Drake to do property developments. More than half the investors' money in the MPF - $234 million - was funnelled into the Maddison Estate project on the Gold Coast. According to the administrators' report, MPF's financial advisers have claims for $2.7 million in commissions and the First Mortgage Investment Fund's advisers have claims for $7.4 million, even though the fund was frozen long before the LM collapse. FTI is locked in a skirmish with Trilogy Capital Group for the management rights to the LM First Mortgage Income Fund. Trilogy, the major unit holder in the fund, with 23 per cent, says investors would be better off with just a responsible entity rather than paying large fees to a liquidator as well. FTI is now recommending liquidation. Judgment is pending. Once again the only winners in this insolvency saga are the liquidators and the lawyers. Big winners.