Commission concern as adviser jailed, OFT probes pensions

In the Slammer

On Wednesday a financial adviser was sent to prison for two and a half years after he made thousands of pounds in commission by submitting insurance policy applications on behalf of clients who did not actually exist.

Mark Watson, of The Vita Partnership in Sevenoaks, was previously a member of Sesame network. Commission would be paid by insurers to Sesame, who would take a cut and pay on commission on to Mr Watson.

By the time the insurance companies including Scottish Provident, Bright Grey and Bupa Health began to try clawing commission back after he let the policies lapse, Sesame had to pay back £355,421 in relation to fraudulent transactions.

I do admit feeling a bit bad for the guy - though it is hard to disagree that he deserves the punishment meted out. During proceedings the judge told him: “You have lost your job, your reputation and marriage and this plainly is a case which calls for immediate custody.”

The following day, pension investment consultant Chistopher Spackman of Tunbridge Wells was sentenced to 14 months in prison after pleading guilty to two counts each of fraud and forgery, lost £100,000 which he siphoned from a pair of trust funds.

It’s a sad story. The court heard that Mr Spackman’s widowed aunt fell ill leaving him responsible for the two trusts. He decided to take money from the trusts and invest it in an effort to make additional money for the funds.

When the first investment failed he went double-or-nothing to try and make up for the loss, but those investments also failed, supposedly in part due to the pernicious effects of the economic crisis.

In the end the trust fund lost over £100,000 without the widowed aunt even knowing it was happening.

Outside of advice, another jail sentence may yet be handed down to a finance executive at accreditation body the Chartered Institute of Securities and Investment, after he cost his employer £218,000 handing out free verification checks to a favoured firm between 2005 and 2012.

Gerald O’Mara, 52, appeared at the Old Bailey to plead guilty to a single charge of fraud.

Pension tension

While undue commission is at the centre of the ex-Sesame adviser story above, it is also in the crosshairs of the Office of Fair Trading, which yesterday (11 July) voiced concerns that “built-in” adviser commission on defined contribution workplace pensions may not represent value for money.

This seems to be in line with the trend towards pricing transparency that has garnered so many column-inches in the last few months.

Two-tier charging structures, built-in commission and schemes which are unlikely to grow large enough to offer members the kind of value they expect, were all among OFT concerns. All eyes will be on its final conclusions, which are due to be published in August.

Elsewhere in the pensions space, the government also announced its intention to remove the cap on contributions into the National Employment Savings Trust in 2017.

The move was long-awaited and had been vociferously called for by many within the industry. however, critics argued that leaving it until 2017 will mean most employees will already have been auto-enrolled.

Nest rival The People’s Pension also raised wider concerns over potential “conflicts of interest” if the Department for Works and Pensions retains responsibility for the default auto-enrolment provider beyond the 2017 final staging dates.

B&CE, operator of the rival auot-enrolment provider, also demanded transparency over transfer charges, saying: “It is not clear, based on Nest’s current two tier charging structure, at what charge Nest will take in transfers and how will this pricing be controlled?”

Shared Perspective

Financial Advisory firm Perspective announced its intentions to float on AIM this week, in an effort to raise £28m to fund acquisitions, retain key staff and manage debt.

It’s an interesting move considering Lighthouse - another advisory firm - tried and failed to de-list late last year, with management saying investors just weren’t interested in putting their money into IFAs due to RDR changes.

It might be tempting to say this is a sign of shifting investor sentiment, but remember the rumours that Perspective was trying to sell earlier this year amid lacklustre financial results. If it was trying to sell and failed, listing might be the next best option for grabbing capital needed to pursue its business aims.

Falling rates

Finally, wrap platform provider Nucleus dropped its pricing floor threshold by £4m, meaning the minimum charge of 15 basis points will now apply to portfolios worth more than £1m instead of only those worth more than £5m.

Portfolios of up to £500,000 will still be charged 35bps as before, and those between half a million and one million pounds will pay 25bps. The new rates will apply to new and existing business.

This follows news that Seven Investment Management had launched new share classes for its funds on its own platform which are 25bps lower than their current rate, in response to the Financial Conduct Authority’s ban on cross-subsidisation.

Perhaps a sign that the FCA’s platform rules are succeeding in driving down prices? I’d like to see the big boys move their own prices before the congratulations begin.