RegulationJun 5 2018

DeVere USA fined by American regulator

Search supported by
DeVere USA fined by American regulator

American regulators have fined DeVere USA $8m (£6m) over its failure to disclose conflicts of interest relating to pension transfers.

The Securities & Exchange Commission (SEC) has also filed charges against two DeVere USA advisers, one of whom was the chief executive of the firm.

It found that between at least June 2013 and March 2016 DeVere USA did not disclose arrangements in which third-party product and service providers recommended in connection with its Qrops advice compensated an overseas affiliate of DeVere USA which, in most cases, in turn compensated the adviser who had made the recommendations.

The SEC said the undisclosed compensation - including an amount equivalent to 7 per cent of the pension transfer value - created an incentive for DeVere USA to recommend a pension transfer and particular product or service providers.

Marc P Berger, director of the SEC's New York regional office, said: "Investment advisers have an obligation to disclose direct and indirect financial incentives.

"DeVere USA brushed aside this duty while advising retail investors about their retirement assets, and today's settlement will result in a Fair Fund distribution to DeVere USA’s retail clients who were deprived of important information."

According to the SEC, DeVere USA's client base consisted primarily of British expatriates who lives in the US and had pensions based in the UK from prior employment.

DeVere USA consented to the SEC's order, which also included the obligation to engage an independent compliance consultant, without admitting or denying the allegations.

The SEC filed charges against Benjamin Alderson, the former chief executive of DeVere USA, and a former area manager, Bradley Hamilton.

According to the SEC, Mr Alderson and Mr Hamilton were DeVere USA's top salespeople, placing first and second, respectively, in terms of commissions generated through Qrops transfers.

It said: "Though Alderson and Hamilton were investment advisers with a fiduciary duty to provide full and fair 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."

The SEC has made three allegations against Mr Alderson and Mr Hamilton: that they concealed their "significant" financial motivation to consummate a Qrops transfer, that they misleadingly touted Qrops as offering what they called "open architecture" which gave clients investment flexibility through access to more than 15,000 securities, and that they misleadingly touted the tax benefits of a Qrops to investors without informing them of tax risks, including the fact a transfer could be a taxable event in the US.

According to the SEC Mr Alderson and Mr Hamilton knew that the 7 per cent commission constituted their primary form of compensation and that it was undisclosed.

The watchdog also alleged that when clients and prospective clients asked about fees or how the defendants were remunerated, they misleadingly referred to a 1 per cent advisory fee, while purposely omitting mention of the 7 per cent commission or their share of it.

In a statement, a spokesman for DeVere said: "DeVere USA reached this agreement with the SEC consistent with our commitment to clients and in the interest of putting the matter behind us.

"The settlement clears the way for the company to continue to develop its investment advisory business in the US.

"DeVere USA continues to invest extensively in its business and has hired a new management team and strengthened its overall systems and controls.

"DeVere USA is committed to treating its clients fairly and keeping their interests at the heart of its business. High quality client service is paramount at DeVere USA, and we work diligently to ensure that we deliver on this goal.

"We look forward to continuing to focus on working with our clients and helping them meet their long-term financial goals."