SEC Fines DeVere $8 Million over Conflicts of Interest

The SEC has fined investment adviser deVere $8 million to settle allegations that the company failed to disclose conflicts of interest to US-based clients with UK pensions.

The SEC said deVere, whose clients are mainly US residents or citizens who were participants in UK pension plans, failed to make “full and fair disclosure” to clients and prospective clients of material conflicts of interest regarding compensation obtained from third-party product and service providers.

According to the SEC’s charges, deVere provided investment advice to its clients in connection with the transfer of UK pension assets to overseas retirement plans that qualified under the UK tax authority’s regulations as a Qualifying Recognized Overseas Pension Scheme (QROPS).

Between 2013 and 2016, deVere allegedly did not disclose arrangements in which third-party product and service providers recommended by it in connection with its QROPS advice compensated an overseas affiliate of deVere. The SEC said that in most cases, the affiliate in turn compensated the deVere investment adviser representative who had made the recommendations.

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“Each of these arrangements created an economic incentive for deVere to recommend a transfer to a QROPS and/or to recommend certain product and service providers,” said the SEC in an administrative filing. It also said that deVere representatives made statements concerning the benefits of transferring UK pension assets to a QROPS “that were materially misleading or incomplete.”

Additionally, the SEC said deVere failed to tailor its compliance program to its actual business, and to undertake many of the responsibilities laid out in its existing compliance manual.

The custodian firms that deVere recommended to prospective clients had fee structures in which clients would be charged a fixed annual amount each year, certain fixed charges for each transaction in the account, and what was referred to as an “establishment fee.” The so-called establishment fee for deVere clients ranged from approximately 1.0% to 1.1% of the pension transfer value per year for 10 years, with early cancellation penalties that guaranteed the custodian firms’ receipt of the full 10% to 11% of the transfer value—either over a 10-year period through the annual charge, or in accelerated early cancellation penalties.

Upon a deVere client’s transfer to a QROPS, the custodian firms paid an amount equivalent to 7% of the transfer value to an overseas affiliate of deVere, which in turn paid approximately half of that amount to the deVere representative who recommended the pension transfer.

The SEC also charged former deVere CEO Benjamin Alderson and former deVere area manager Bradley Hamilton with defrauding hundreds of clients and prospective clients by misleading them about the benefits of irreversibly transferring their UK pensions to an offshore pension plan, while concealing serious conflicts of interest, including the “lucrative commissions” Alderson and Hamilton received.

The SEC said Alderson and Hamilton “violated the fiduciary duty that every investment adviser has to its clients and prospective clients: to put the client’s best interests first, employ utmost honesty, and fully disclose all material information, including actual and potential conflicts of interest.”

Although Alderson and Hamilton were investment advisers with a fiduciary duty to provide full disclosure of all material facts, “they nonetheless provided advice that was self-interested and designed to push clients and prospective clients toward a QROPS transfer, which, when effected, generated for defendants millions of dollars in undisclosed commissions.”

In response to the settlement with the SEC, deVere said it “continues to invest extensively in its business and has hired a new management team and strengthened its overall systems and controls.”

The firm also said that as part of its settlement with the SEC, it “has agreed to retain an independent compliance consultant to conduct annual reviews over the next three years.”

Tags: Benjamin Alderson, Bradley Hamilton, deVere, SEC

The total deficit for all UK private sector pension plans plunged 45% to £43 billion at the end of May, from £78 billion at the end of April, according to JLT Employee Benefits (JLT). The deficit is now less than one-third of its size at the same time last year, when it totaled £135 billion.

The shrinking deficit was a result of the total assets of all UK private sector pension plans rising £38 billion to £1.577 trillion during the month, while liabilities increased only £3 billion to £1.62 trillion during that same time. This brought the plans’ aggregate funded level to 97% in May, compared to 95% the previous month, and 92% at the same time last year.

“Markets continue to be positive for pension schemes and overall reported pension deficits are showing a strong improvement from 12 months ago,” Charles Cowling, director of JLT Employee Benefits, said in a release. “Indeed, the FTSE 100 is very close to showing an aggregate surplus in its pension schemes for the first time in a decade.”

The aggregate funded level of the FTSE 100 pension plans rose to 99% at the end of May, up from 98% at the end of April, and 95% at the end of May 2017. And the funded level of the pension plans of the FTSE 350 companies also rose to 99% at the end of May, from 97% a month earlier, and 94% at the same time last year.

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Despite the rising funded levels, Cowling said the outlook for interest rates is “crucial” for pension plans, pointing out that The Bank of England’s Monetary Policy Committee was expected to raise interest rates last month, but did not. He said two factors suggest that the next rise in interest rates could still be months away. One factor is “positive signs on inflation” with the latest headline rate at 2.2%, down from 2.3% last month. The second is that there has been a change announced to the Bank of England’s Monetary Policy Committee, with Jonathan Haskel replacing Ian McCafferty starting in September.

Cowling said Haskel, an academic economist and productivity expert at Imperial College London, is expected to bring “insights and understanding on the UK economic outlook at a time when there are increasing signs of the economy stuttering with Brexit looming imminently.”

He also noted that The Pensions Regulator’s chief executive Lesley Titcomb is stepping down at the end of her term in February. Cowling said that based on a recent government white paper promising a tougher stance on pension funding, it is possible that this could be a sign that politicians intend to increase their attention toward pensions.

“So this latest good news in markets may just be the calm before the storm,” said Cowling. “Perhaps this should trigger companies and pension schemes to take advantage of the current relative good times and seek opportunities to de-risk and settle liabilities whilst they can.”

Tags: Charles Cowling, JLT Employee Benefits, Private Sector Pension, UK