Lawmakers increase scrutiny on advisers & watchdogs
by Alex Varley-Winter, TTF’s Head of Media Relations & Investigative Reporting
“I have long been concerned about the approaches of offshore advisers and I believe that this should be the particular focus …” commented Bob Blackman last week, as he was appointed to chair our All-Party Parliamentary Group on Pension Scams. Rob Roberts, Lord Kirkhope and Nick Smith will vice-chair, supported by a voluntary Secretariat – get in touch if you’d like to help.
This week, TTF’s founder Andy Agathangelou is looking forward to delivering our evidence to MPs’ newly-opened Pension Scams Inquiry – which we campaigned for – he’ll be on Parliament TV at 9am this Wednesday. We have interviewed six pension scam victims in addition to drawing on the wealth of knowledge that Andy has gleaned about this problem over the years, leading him to conclude that scams are a ‘festering sore’ on the pensions industry.
The tip of an iceberg
The Work and Pensions Committee’s inquiry – which will focus on ‘pension freedoms’ legislation – can only skim the surface of the UK’s vulnerability to fraud in general terms. In 2020, this category of crime is booming. MPs, police, banks and City watchdogs have been under fire for failing to get to grips with it and although bank branch staff stopped £19m cons in the first half of 2020, the scams keep coming.
In the period we’ve spent preparing our evidence to the inquiry, I’ve been concerned to see that fraud – in all categories – has soared to extraordinary levels. Action Fraud’s interactive dashboard shows that alleged fraud victims’ reported losses in July edged towards half a £billion — £418.6M in that month alone from 37,414 incidents, in the middle of the UK’s coronavirus response, with an increasingly financially insecure population in lockdown. The Daily Mail drew on these figures to describe fraud as having tripled.
Stride intervenes in watchdogs’ complaints controversy
Chair of the Treasury Select Committee Mel Stride has effectively slowed down a controversial consultation by City regulators that would ostensibly cap compensation to victims of regulatory failure at £10,000, and potentially allow the watchdogs to write off complaints they deem ‘vexatious’.
Andrew Bailey and Chris Woolard have just extended the consultation period until 12th October, in response to Mr Stride’s intervention below, in which he says that the results will be of interest to the Treasury Select Committee.
The delay is unlikely to be the end of regulators’ troubles. The planned complaints scheme has been both heavily critiqued by the Financial Regulators Complaints Commissioner and by victims of financial abuse who have complained about the FCA in the past. There are also serious questions being raised – to me – over which consumer stakeholders were told about the planned changes to the scheme, given that Mr Bailey and Mr Woolard report ‘proactive’ outreach to consumer organisations in their joint reply to Mel Stride. We have not yet heard from these or any user of the existing complaints scheme who was approached for their views.
It is TTF’s considered view that the plan for a new complaints scheme ought not to be delayed, but actually suspended, pending the results of three reviews into major scandals about which regulatory failure was alleged: London Capital & Finance, the Connaught Income Fund Series 1, and the sale of Interest Rate Swaps to SMEs.
We continue to plan our response to the consultation, if you would like to contribute, please get in touch.
Will 'lone ranger' lawyer's achievements inspire UK savers?
Award-winning journalist Robin Powell wrote after attending TTF’s Masterclass with Jerry Schlichter last week: “I have little doubt that we will see legal action against UK fund trustees and asset managers over excessive fees in company pension schemes within the next few years. It really shouldn’t be necessary to resort to litigation to protect the interests of pension fund members. But, in the US, that’s what it took to open people’s eyes to the abuses taking place.”
The New York Times dubbed lawyer Jerry Schlichter the ‘lone ranger’ on his case against Lockheed Martin in 2014. Gretchen Mortenson wrote that ‘for years, Mr. Schlichter said, Lockheed officials allowed State Street to receive large and hidden fees from plan investments in addition to an annual record-keeping fee of $4 million to $8 million. Plan participants, he contends, lost hundreds of millions of dollars as a result.’ His law firm Schlichter Bogard & Denton later achieved a $62 million settlement on behalf of Lockheed Martin employees in that case.
Risking personal ruin to wake up sleeping giants
Mr Schlichter’s personal story is extraordinary. He was working as a no-win-no-fee personal injury lawyer when, in the mid-00’s, he came to the realisation that there were buried issues of excessive fees in some very large 401(k) pension schemes, with stewards asleep at the wheel.
“I made the very sobering decision to take on the biggest companies in the country. Boeing , Lockheed Martin, Kraft Foods, and so on,” he recalls.
Mr Schlichter’s law firm was then, basically, three people. “We could not begin to finance this out of our own resources, we would have to get an eight figure line of credit, so we put our houses, our net worth, everything on the line, because without that we would not be able to fight.”
Regulators, and what he calls ‘conservative’ judges, could not necessarily see the problem when Schlichter Bogard & Denton started bringing cases. If they had lost the first case, it “would have been personally a disaster resulting in bankruptcy”, and would have set a damaging precedent discouraging others.
Other lawyers had been aware of the excessive fees in many 401(k) plans, but nobody else had taken it on ‘because of that staggering risk’, he recalls.
His firm persevered: “We filed in 2006 a series of cases against these very large companies, all of which had $billion or multi-$billion plans.”
He gave us an account of how one opponent lavished more than £40M on trying to beat them – in a case he won – and how he faced some hair-raising set-backs in the early days, with one client facing the threat of financial ruin themselves. As experienced ‘no win no fee’ lawyers in the purest sense, his firm had taken a very considered risk, starting before the 2008 recession when credit was, perhaps, more easily available.
I recommend browsing this analysis of what he has since achieved in the United States, in terms of forcing the cause of fee transparency, as it was unprecedented.
Press Timeline of relevant articles:
11 Sep 2020 – The Hut Group facing fresh questions over governance after it reveals one of country’s best-known private equity barons to oversee pay policy by Lucy White for the Daily Mail
10 Sep 2020 London Capital and Finance investors relieved after court ruling opens route to compensation claims by Ben Chapman for the Independent
08 Sep 2020 – Change in law needed to stop scams, says Timms, by Amy Austin for FT Adviser
24 Aug 2020 – Financial Conduct Authority rushes to minimise compensation for its failings by James Hurley for The Times
04 Aug 2020 – Have your say: Will the WPC’s inquiry into the impact of pension freedoms be too overshadowed by Covid-19 impacts? by Professional Pensions
03 Aug 2020 – ‘“I’m 39, have lost my job and am in debt – can I unlock my £18k pension?” … DON’T do it!’‘ by Steve Webb for This is Money
01 Aug 2020 – ‘I lost £2.3m after I was conned into transferring my pension’ by Jessica Beard for the Telegraph
31 Jul 2020 ‘Common sense’ prevails as pension freedom withdrawals fall 17% — But drop is expected to be ‘a short-term blip’ by Robbie Lawther for International Adviser
31 Jul 2020 – HMRC figures show plunging pension freedom withdrawals by Hope William-Smith for Professional Adviser
28 Jul 2020 – MPs launch inquiry into pension scams by Tom Kelly for Daily Mail ; UK Pension Scams Under Scrutiny After 2015 Relaxation in Rules by Reuters & MPs launch wide-ranging pension scams probe by Justin Cash for MoneyMarketing
24 Jul 2020 – US business groups seek steps to stamp out online fraud by Leonie Barrie for Just Style
17 Jul 2020 – Year ‘dominated’ by FCA shortcomings as 205 complaints made, by Rachel Mortimer for FT Adviser
29 Jun 2020 – MPs Pushed to Launch Pension Scam Inquiry by Amy Austin for FT Adviser & Lawmakers Urged To Open Inquiry Into Pension Scams by Martin Croucher for Law 360
11 May 2020 – FCA urged to build public trust in independent reviews by Rachel Mortimer for FT Adviser
15 Apr 2020 – Met police lose two thirds of finance officers as fraud soars by Ben Ellery for the Times
20 Mar 2020 – Connaught review delayed as Covid-19 concerns loom by Rachel Mortimer in FT Adviser
29 Dec 2019 – ‘Lambs to the slaughter – tens of thousands of savers have lost up to £10billion in rogue pensions schemes sanctioned by the government… and now the taxman is threatening VICTIMS with fines’, by Tom Kelly for the Daily Mail
15 Aug 2019 – Victims hit by Connaught’s collapse blast City watchdog for ‘whitewashing’ independent review by Lucy White for Daily Mail
18 Jun 2019 – “I came home to find my house had been stolen!” by Angela Ellis-Jones for the Daily Mail
20 Jun 2019 – FCA orders review of its handling of Connaught collapse by Rachel Mortimer for FT Adviser