International advisory business deVere has acknowledged that it did not disclose all of the commissions it earned on a number of investments recommended to some of its South African clients. The company has made the admission in several emails seen by Moneyweb between deVere Acuma (formerly deVere Investments SA) and former clients that are trying to recoup costs that they claim they were never told about.
Although deVere claims that it has since adopted a new approach of full disclosure, it says that it acted on legal advice at the time and denies that its conduct was unlawful.
deVere claims to be the “one of the world’s leading financial advisory organisations with over 80 000 clients worldwide”. It has been operating in South Africa since 2008, with its predominant target market being British ex-pats.
In the emails the clients request that deVere provide details of all the commissions it received on their investments, and how much of this was actually disclosed by their advisers. These clients are being assisted by a former deVere employee who is currently in dispute with it over unfair labour practices.
deVere’s replies provide astonishing admissions that, in the majority of cases seen by Moneyweb, undisclosed commissions outstripped those that clients were actually told about. In one case, deVere shows that a client paid £80 650.37 in commissions to the company between 2010 and 2014, but only £16 296.24 of that was actually disclosed. In other words, the client paid £64 354.13 over this period in commissions that he was not made aware of.
However, while deVere acknowledges that these commissions were undisclosed, it argues that it was not obliged to tell the clients about them because they had invested through offshore trusts in Guernsey:
“Where we show fees undisclosed in their entirety, you were of course informed we received commissions,” the emails state. “Please bear in mind that as you chose the trust route, it is in fact the trustees who are the clients, not yourself. The trustees are offshore, so the investment advice was given outside South Africa. Therefore we do not accept that we were under a duty to disclose these commissions to you.”
This explanation is repeated verbatim in a number of emails Moneyweb has seen.
However, one of the trustees, Sovereign Trust, has confirmed in an email that deVere would not have provided them with any advice, and that they would not have agreed to any commission levels, as this had to take place between the investor and the adviser. Furthermore, the Guernsey Financial Services Commission has told Moneyweb that deVere is neither licensed nor registered to give advice in Guernsey.
A further email to an investor from deVere’s legal department claims that the Financial Services Board (FSB) is also “fully aware” of the argument that deVere was not obliged to disclose all of the commissions it earned. However, the head of department for FAIS compliance at the FSB, Manasse Malimbe, made it clear to Moneyweb that although the regulator is aware of deVere’s argument it does not condone it.
“The issues and the defences deVere raised were investigated, but the FSB does not agree with the argument and therefore does not condone it,” Malimbe said.
The regulator has confirmed to Moneyweb that it is currently involved in an investigation of deVere’s operations in South Africa.
In further support of the clients’ claims, two former employees of deVere in South Africa have, independently of each other, told Moneyweb that non-disclosure of fees was systemic while they were working for the organisation. They were apparently encouraged not to tell clients what the full costs of investing would be, as this would be a deterrent to attracting new business.
The clients claim that deVere’s conduct may be in contravention of South Africa’s FAIS Code of Conduct. The code, which is legally binding on all financial advisers registered in South Africa, places clear obligations on service providers to inform their clients about what they will be paying.
However, deVere spokesman George Prior argued to Moneyweb that this is a legal question that still needs to be resolved.
“deVere discloses all of the commissions it charges, and has done for some time,” Prior said. “As such, your question regarding disclosure refers solely to historical conduct. It is ultimately a legal question, and whether or not there was correct application of the disclosure rules is precisely what the FSB is currently reviewing. The disclosure practice during the relevant period was based on the legal advice of reputable, specialist attorneys at the time.”
deVere would not however tell Moneyweb who provided this legal advice. When asked whether all of the investors who were affected had been informed that they were paying commissions that were originally undisclosed, Prior said that:
“deVere can confirm that no clients are still paying amounts as part of the commissions whose disclosure has been challenged. The disputed disclosure practice related to commissions received at time of inception only and don’t recur.
“When the FSB took issue with deVere’s practice, deVere thought it prudent to change its approach to voluntary disclosure of the types of commissions in question, pending a final ruling from the FSB, but it has not conceded that the earlier approach was not lawful,” Prior added. “It has adopted an approach that the FSB is comfortable with, so the issue in dispute can no longer arise for future clients. If deVere is ultimately found to have acted incorrectly in the past and is directed by the FSB, it will certainly inform all affected clients and former clients.”
An example of the emails between deVere and clients can be viewed here.
The full correspondence between Moneyweb and Prior can be viewed here.
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