What’s in my Pension? – The role of DFMs in pension fraud

20 June, 2017

Customers who have their pension funds held under management

with Strand Capital Limited will be understandably concerned at the recent collapse of the discretionary fund manager (DFM). The reasons for Strand’s collapse have not yet been confirmed. However it serves as a timely reminder for financial advisers and wealth managers to ensure that proper due diligence is undertaken on the DFMs that they are recommending to their clients.

The role of DFMs in pension fraud has been highlighted by the FCA earlier this year. The FCA warned advisers that pension scams had evolved to become increasingly sophisticated. The alert identified that “Third-generation scams now use the services of a discretionary fund manager to create an investment portfolio that does not require the direct input of the investor; this portfolio then invests in special purpose vehicle (SPV) bonds. The reason for this evolutionary process appears to be to obscure the nature of the ultimate underlying investment”.

The FCA explained the evolutionary process that pension liberation has undergone.

First-generation schemes offered unregulated physical assets (such as commercial property for direct investment).

Second-generation schemes obscured those underlying unregulated physical assets by creating a special purpose vehicle (SPV) to acquire them using funding raised by the issue of corporate bonds.

It appears that now discretionary fund managers are being used to hide the fact that an investment portfolio can be concentrated in high risk and illiquid assets. A client would not necessarily know what underlying investments are held in his or her pension, particularly as the pension valuations often provide very little detail other than to identify that a portfolio is under the management of a DFM.

If you have suffered losses as a consequence of defective financial advice or services please contact Pradeep Oliver at pradeep.oliver@crippspg.co.uk  or call 01892 765453 for a no obligation consultation.