Former clients of the world's largest expatriate financial advisory firm, deVere, say they have been contacted by Hong Kong investigators probing possible regulatory breaches in a move that comes as the firm embarks on a major expansion in the city.
The former clients told the South China Morning Post they had been contacted by the Confederation of Insurance Brokers (CIB), which regulates the sector, and questioned about the products and services sold by the firm and the representatives selling them.
The news comes in the wake of a Post investigation which revealed in October that deVere, which controls US$9 billion of assets worldwide, was facing down accusations of mis-selling and bad practice from former clients and employees.
The CIB declined to comment on fresh developments when contacted by the Post.
In an earlier statement, the CIB said it "has been aware of certain allegations regarding deVere for some time". DeVere has been disciplined seven times by the regulator in the past eight years for breaches of industry rules.
DeVere spokesman George Prior said the firm was unaware of an investigation and asked the Post to hand over the names of its sources.
The CIB regulates deVere and all its client-facing representatives must be licensed by the CIB. The use of unlicensed representatives is a breach of the Insurance Companies Ordinance, punishable by a fine of up to HK$1 million and two years' imprisonment.
DeVere has obtained injunctions on two former employees to prevent them talking about the company. None of the material in this article comes from those former employees.
DeVere has been without a chief executive in Hong Kong since September last year and the CIB has declined to license any new front-line staff to sell insurance while it has been without one.
The latest regulatory developments come weeks after deVere announced the acquisition of Precision Group Asia, a Hong Kong-based insurance broker regulated by the Professional Insurance Brokers Association (PIBA). Like the CIB, PIBA is a self-regulatory industry body accountable to its members.
The November 8 deal was followed a week later by the purchase of financial advisory firm GWM Hong Kong, which it plans to relaunch as Acuma, the brand name of a deVere-owned entity based in the Middle East. GWM Hong Kong is CIB regulated.
Three people who worked at deVere without CIB licensing - David Hubbard, Jason Ryder and Matthew Bond - who the firm says did not have client-facing roles and so needed no licence, have moved to Precision Group Asia. They now appear on the PIBA website as licensed representatives.
The actions of deVere in buying up brokers while under investigation underlines a weakness in the two-track system used for regulating Hong Kong's insurance market. Regulators are non-statutory bodies with limited powers to investigate or censure.
"Hong Kong needs a unified financial services commission that regulates all client-facing activities and client-facing institutions. At the moment we have a patchwork of inconsistent regulation. Particularly in the intermediary land there is a regulator arbitrage where brokers choose the weaker regulator," said corporate governance advocate David Webb, speaking without specific reference to deVere.
Prior said any suggestion the company was buying firms to confuse regulators was a "false accusation", adding that the firm was "excited about developing the deVere Hong Kong brand further".
DeVere has put forward Simon Davies as the new head of Acuma in Hong Kong.
Davies previously served as chief executive for the Hong Kong-based advisory firm Richmond Asset Management. The CIB fined Davies last year for a breach of compliance following a client complaint.
"As a 35-year veteran of this industry, I have a strong belief in the fundamental benefit to the general public of a healthy, well-regulated and robustly unbiased and compliant independent advisory sector," Davies said.
Investors in Hong Kong insurance firms do not need to get regulatory approval before a takeover. According to the Office of the Commissioner of Insurance, which oversees the CIB and PIBA, if a buyer of an insurance broker wants to control more than 15 per cent of the shares, the new owner must be deemed "fit and proper".
PIBA told the Post it was unaware of any CIB investigation when deVere bought Precision Group Asia. The CIB and PIBA have no formal means to share information about associated firms, or understand who ultimately owns the entities they regulate.
Prior said deVere bought GWM as a platform to launch Acuma, which it hopes to position as a wealth manager licensed by the Securities and Futures Commission, which would let it advise on a full range of investments. It wants to make Acuma the largest independent financial advisory firm in the Asia-Pacific region, Prior said, while continuing to operate the deVere brand in Hong Kong to provide financial planning for expatriates.