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.
“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