Fighting pension scams: Regulation
If it was easy to stop pension scams, everyone would be doing it. Clearing up the mess left behind a pension scam is a huge challenge. This is why clear international standards need to be recognised and adopted. The scammers are like flocks of vultures. If people only used regulated firms, they could avoid a lot of scams.
- Firm must be fully regulated – with licenses for insurance and investment advice
- Advisers must be qualified to the right standard
- Firm must have Professional Indemnity Insurance
- Clients must have comprehensive fact finds and risk profiles
- Firm must operate adequate compliance procedures
- Advisers must not abuse insurance bonds
- Clients must understand the investment policy
- All fees, charges and commissions must be disclosed
- Investors must know how their investments are performing
- Firm must keep a log of all customer complaints
Why is regulation so important?:
- If a firm sells insurance, it must have an insurance license.
- If a firm gives investment advice, it must have an investment license.
Many advisers will claim that if they only have an insurance license, they can advise on investments if an insurance bond is used. This practice must be outlawed, because this is how so many scams happen.
Most countries have an insurance and an investment regulator. They provide licenses to firms. Some regulators are better than others. Most regulators do some research and only give licenses to decent firms.
History tells us that most pension scams start with unlicensed firms. Here are some examples:
LCF Bond, Blackmore Bond, Blackmore Global Fund, LM, Axiom and Premier New Earth – all high risk failures. The investors have lost some or all of their money in these bonds and funds. They were mostly sold by advisers without an investment license. Investors lost well over £1 billion. Advisers (introducers) earned £millions in commissions.
Continental Wealth Management invested 1,000 clients’ funds in high-risk structured notes. Investors started with £100 million. Most have lost at least half. Some have lost everything. Continental Wealth Management had no license from any regulator in any country.
Serial scammers such as Peter Moat, Stephen Ward, Phillip Nunn, and James Hadley all ran unlicensed firms. Peter Moat operated the Fast Pensions scam which cost victims over £21 million. Stephen Ward operated the Ark, Evergreen, Capita Oak, Westminster and London Quantum pension scams which cost victims over £50 million. James Hadley operated the Trafalgar pension scam which cost victims over £21 million.
Phillip Nunn operates the Blackmore Global Fund which has cost victims over £40 million. Serial scammer David Vilka has been promoting this fund. Over 1,000 people may have lost their pensions.
Firms that give unlicensed advice are breaking the law. Unlicensed advisers often use insurance bonds. These bonds pay high commissions. The funds these advisers use also pay high commissions. The advisers get rich. The clients get fleeced. The funds get destroyed. Insurance bonds such as OMI, FPI, SEB and Generali are full of worthless unregulated funds, bonds and structured notes.
Unlicensed firms hide charges from their clients. Most victims say they would never have invested had they known how expensive it was going to be.
Hidden charges can destroy a fund – even without investment losses. Licensed advisers normally disclose all fees and commissions up front. This way, the client knows exactly how much the advice is going to cost.
People can avoid being victims of pension scammers. Using properly regulated firms is one way. An advisory firm should have both an insurance license and an investment license. Don’t fall for the line: “we don’t need an investment license if we use an insurance bond”. Bond providers such as OMI, FPI, SEB and Generali still offer high-risk investments. The insurance bond provides zero protection. And the bond charges will make investment losses much worse.
YOU WOULDN’T USE AN UNLICENSED DOCTOR.
SO DON’T USE AN UNLICENSED FINANCIAL ADVISER.