deVere marketed unapproved offshore funds to SA investors

More questions around the international consultancy’s business practices in SA.

Investigations by Moneyweb have revealed that international financial advisory firm deVere has invested clients in offshore funds that are not FSB-approved. This is a potential breach of regulations as these funds may not be legally marketed to investors in South Africa.

Moneyweb has seen deVere client portfolios that include investments into a number of unapproved offshore funds, including the MitonOptimal Special Situations Fund, Strategic Growth Fund Plus, GAM MPS Growth Strategy Fund and GAM MPS Balanced Strategy Fund.

Under Section 65 of the Collective Investment Schemes Control Act (Cisca) only foreign funds that have been approved by the FSB may be marketed in South Africa. These funds have to meet the same standards as those set for local collective investment schemes in order to receive such approval.

Kedibone Dikokwe, the head of the department for Collective Investment Schemes at the FSB, confirmed to Moneyweb that any financial advisor that invests client money into unapproved funds is therefore “contravening the Collective Investment Schemes Control Act and his/her FSP license condition”.

While being unapproved does not necessarily mean that there is anything sinister about the funds themselves, it is an offence to market them in South Africa. Under Cisca, anybody who solicits investment into one of these funds could be imprisoned for up to five years.

Moneyweb approached deVere for an explanation as to why these funds were being offered to South African clients, what commission deVere has or will earn  for selling them, and whether they are still being promoted. deVere’s spokesperson George Prior, would not, however, provide any answers. He only indicated that:

“Should any client have a complaint about a product or service that they were introduced to by deVere, they can contact us directly. deVere has 80 000 clients globally and this number continues to increase. As a responsible, proactive and growing organisation, we are committed to fixing any issues that may arise, putting right what might have potentially gone wrong.

“Like all firms, deVere does receive complaints from time to time, but the number of identifiable, legitimate complaints received by the firm is extremely low,” Prior added. “However, that said, any such complaints are taken seriously and are resolved with and for the client, internally and/or externally, as soon and as fairly as possible.”

deVere’s response fails to disclose how much the company stands to benefit from investing clients into these funds. Moneyweb has confirmed with MitonOptimal that the Special Situations Fund has two classes in Guernsey, both of which allow an upfront charge of 5%. In both cases, 4% accrues to the advisor, and 1% to MitonOptimal. One class pays the fee to the advisor immediately, while the other amortises it over the first five years of the investment.

GAM would not discuss its agreement with deVere, but a former deVere employee has indicated to Moneyweb that the GAM funds also allowed for a 5% upfront charge. Of this, 1% went to GAM itself, 2% to deVere and 2% to the advisor.

Alternative strategies

One of the primary reasons that the FSB requires offshore funds to be approved before they are marketed locally is to ensure that they are suitable vehicles for the average investor. This will exclude funds that employ sophisticated, alternative strategies.

In the case of both the GAM funds, for example, hedge fund strategies are employed and their own marketing material makes it clear that they are therefore “aimed at sophisticated, professional, eligible, institutional and/or qualified investors who have the knowledge and financial sophistication to understand and bear the risks associated with the investments”. They also state that “GAM hedge fund products are only available to investors who are comfortable with the substantial risks associated with investing in hedge funds”.

Clients also may not have the same protections in these funds as they do in local collective investment schemes. Again, this is clear from the GAM marketing material, which states that the funds “are not available for sale in any state or jurisdiction in which such sale would be prohibited”.

Problem portfolios

Earlier this year Moneyweb revealed how deVere had failed to disclose the commissions it received on a number of investments recommended to its South African clients. These non-disclosures were acknowledged by deVere itself in a series of emails between its legal department and clients.

Although the company argued that this conduct was not unlawful, a number of former clients have raised the matter in complaints filed with the Fais Ombud. deVere’s contention is that because the money was invested through offshore trusts, the trustees of those vehicles became the actual clients. They argue that since these trustees were not in South Africa any advice given to them was not subject to South African regulations and therefore did not require all commissions to be disclosed. The individual investors however insist that they remained the clients, no matter where or how their money was invested.

This argument is currently being scrutinised by the Financial Services Board (FSB) as part of a wider investigation into deVere’s operations in South Africa. Caroline da Silva, the deputy executive officer for Fais at the regulator, told Moneyweb last month that inspection is currently being finalised and the matter should be concluded “shortly”.

It is however unclear whether the FSB is also looking into the investments into unapproved offshore funds in these very same portfolios. 

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There are a number of ‘financial advisors’ in the UAE where I live. Unfortunately, some of my friends have lost (lots of) money through these ‘financial advisors’ by not being aware of the fees that they are being charged, the duration for which they must continue to invest in the funds and the high penalties they must pay to exit the funds early. I always caution my friends to fully understand what they are signing before committing to investments through one of these companies. Fortunately the authorities in the UAE are clamping down on these investment and insurance companies and requiring them to be properly regulated and controlled. Hopefully this will eliminate the ‘fly by night’ operators. Bye from Abu Dhabi.

The financial planning industry has 8 salesmen and 1 outright crooks for every 1 proper planner/wealth manager – the problem is those proper planners are necessary and add HUGE value to a person who needs financial guidance (the reality is most ppl need a planner – the same way most people need a mechanic for their car or a doctor to prescribe medicine ..if finance isn’t your day job then its prudent to use professional guidance).

Good to see the indsutry has made huge strides forward since the 90’s – lets hope the professinoalism continues to develop away from these ‘vulture practices’.

As far as the FSB is concerned, the term “shortly” can mean anything.

They are not really pro-active.

The spectacular failure of SAXUM INSURANCE (Liquidated)came after many warning signs and months of direct warnings. If the FSB was pro-active (read: just doing their job) this could have protected policyholders – which, by the way is the main focus and responsibility of the FSB

But, when you earn much more than what you are worth and no threat due to your lack of performance – why bother about policyholders’ interests.

Milking the client for all they can, past and present. Probably will close down in SA before any serious action taken by the FSB and then tell the world it’s part of a ‘global strategic review’.

Took a couple of weeks after the FCA in the UK barred them from doing any further DB pension transfers before the UK operations shut down.

UK closure has just been followed by the closure of their USA operations.
They don’t last long in well regulated areas do they?

Whatever happened to the Kellermann / deVere expose that former Moneyweb head honcho and barely literate journalist Alex Hogg went off about?

Kellermann and Cosgrove have already been exposed by regulators in various offshore jurisdictions, with action taken against them. Biznews are now endorsing Carrick Wealth on their website, which is a
firm started by people who ran deVere in SA up until a few years ago, the same people who should’ve been named in this article.

Prior the liar is still saying the same nonsense. There are hundreds of complaints globally against deVere every week. The FSB have had more than they can handle over the years.

Although I also find a lot of these firms’ commission policies suspect I have another question. How was Moneyweb able to obtain client portfolios of this firm? I hope not through the former employee that is also spoken about because this would be in breach of the employee’s NDA. Portfolios are private information and if my portfolio was just handed about I would be absolutely furious. Luckily for me I manage my own portfolio and have no funds with these types of firms.

The clients in question have given their approval for Moneyweb to see their portfolios.

Who is Alex Hogg and what is the FSB please?

Its so simple. Check the FSB website to see if the manager is FAIS approved. 2. Is the fund S65 approved ? , if not just walk away. 3. Does the manager have an office staff, Ki etc in SA or do they fly in for the week and then leggit back to mud island….Its a real ache to get those S65 approvals because the funds need to comply with IMHO good FSB requirements e.g no leverage using derivatives…so if the fund is not S65 approved there is probably a good reason for it

Did some looking and turns out this fund was just released under a new name. Probably why its not approved yet

Local investors are allowed to invest in unapproved offshore funds through the “reverse-enquiry” approach. So there is nothing wrong with this.

Investors can invest in any unapproved fund they want, that’s purely their choice, but licensed advisers cannot advise them on it, or market the fund in any way.

End of comments.



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