Regulator probes Old Mutual

• Accusers say clients came second

The Financial Sector Conduct Authority (FSCA) is investigating allegations that Old Mutual’s independent financial advisory business Adviceworx (ADX) adviser acquisition model breaches regulations, putting clients’ interests second.

Meanwhile, the falling out between ADX and its former senior employees turned whistle-blowers is growing. One of the whistle-blowers, in his communication with Old Mutual top brass, describes the alleged breach as the “largest financial advisory and intermediary services breach in SA history”.

The investigation, which has been in the works for more than a year, is looking into allegations that ADX is in breach of regulations by paying financial advisers sign-on bonuses, disguised as vocational restraints of trade (ROT) payments.

That would be at odds with rules determined by the Financial Services Board in 2014, as it was called at the time, which prohibited sign-on bonuses being offered by insurance companies to advisers to entice them to leave their current insurer and join them.

This rule was in response to a trend of advisers receiving generous sign-on bonuses and churning clients to other companies by convincing them the new policies or investments were better options, which was not always the case.

At the heart of the accusations levelled at ADX is that it used ROT payments as sign-on bonuses and enhanced commission incentives to churn clients’ investment assets into higher income-generating assets for ADX and Old Mutual.

The two whistle-blowers in their protected disclosures (PDs) submitted to the FSCA in about September 2022, say they have a “conviction” that about R350m

of Old Mutual capital was used to directly incentivise the transfer of more than R20bn in clients’ investments to Old Mutual margin generating assets in the past eight years, affecting more than 10,000 clients.

“The ADX business model is potentially in breach of FAIS, GCOC [general code of conduct], RDR [retail distribution review], TCF [treating customers fairly], and so on, in law and in spirit, in that it pays sign-on bonuses (disguised as vocational ROTs) and are in breach of conflict of interest regulations in that advisers are incentivised (through variable commissions shares) to churn assets from an open architecture landscape into assets under management [AUM] that earns ADX and Old Mutual margins in addition to advice fees,” the disclosure says.

“The downstream profits that have been generated by financially induced brokers thus providing conflicted advice would be running into the tens of millions annually.”

There is no love lost between ADX and some of its former advisers and senior managers who recently left the business en masse and joined rival Wealth Associates, taking about R2.5bn worth of business with them.

ADX applied successfully last month to the labour court to bar 10 of its former advisers who work for Wealth Associates, owned by Carmel Wealth, which at the time was run by one of the whistle-blowers. The court found that the resignations and relocations of the advisers and clients to Wealth Associates was an “orchestrated business hijack” of ADX.

An Old Mutual spokesperson said an investigation by the group did not support the allegations made by the two whistleblowers, who the group said it believed acted in “concert”.

“Old Mutual has been aware of the investigation since March 2023 when ADX received notification from the FSCA. ADX is fully co-operating. The investigation ... deals only with a very limited aspect of the Financial Advisory and Intermediary Services Act.

“It appears ... that the modus operandi of the individuals was to secure a protected disclosure agreement with us and thereafter engage with an international whistle-blowing platform to carry a false narrative.”

Old Mutual is referring to UK-based SpeakOut SpeakUp, which has taken on the case, saying the group did not take the claims seriously and exposed the whistle-blowers to harassment. Wendy Addison, SpeakOut SpeakUp CEO, said Old Mutual had not acquitted itself well in how it treated the PDs.

Addison called on Old Mutual to share the results of its investigations with the whistleblowers. “These disclosures encompass matters in the public interest, such as potential FAIS Act infringements.”

The FSCA did not respond to requests to comment.