What exactly happened with Continental Wealth Management?

Wealth Management
Sam Kelly, Managing Partner
Sam Kelly
Managing Partner

A COUPLE more weeks have passed since the devastating revelations regarding the collapse of CWM, and as each day passes, more people are discovering they themselves were victims.

I’m sure many in my industry would like to brush this under the carpet, and remove it from the public interest, but we must learn lessons from this, and as an industry, we must educate the public to ensure what happened CANNOT happen again.

We are not yet fully aware of the numbers, but early data is showing that as many as 40% of CWM’s 900 clients were affected by this. All of these clients were in a type of overseas pension called a QROPS.

I have written extensively in the past as to why Chorus warns extra due diligence with regards moving your pension to a QROPS. With a competent and ethical financial advisor, a QROPS may be a suitable consideration for those looking to transfer their pensions, but ensure you receive properly licensed and qualified advice, as there are also options available where you can leave your pension in the UK with similar benefits.Sadly, QROPS can also be open to abuse, as it is able to hold complex and often high-risk investments that are not suitable for non-professional investors.

The CWM losses were all caused by one particular type of product called a ‘structured note’. Notes vary in terms of their level of risk, and in this case incredibly high-risk notes were used. The best way to explain why these notes were so high risk is to compare them to an industry standard multi-asset investment fund.

A well-balanced portfolio should consist of a number of well-known, long established, multi-asset funds, managed by household names such as The Prudential, Investec, HSBC, Fidelity, Rathbones, Legal and General, Blackrock etc. Each of these funds will have diversification criteria set out by their regulator (in the case of Chorus, we only recommend UK FCA regulated funds, unless our clients specifically request otherwise, which is usually only the case with experienced investor clients).

A diverse fund will hold a mix of assets such as shares, property, fixed interest securities and cash deposits. Within each of these types, there will be many different holdings. These are exactly the same funds that would be used by financial advisors in the UK for their investment and pension clients.

In practical terms this should mean that an individual holding represents a tiny fraction of the overall portfolio, so no single asset can add unnecessary risk to the portfolio.

Rather than using a number of highly regulated multi-asset funds, the CWM advisors were being paid high commissions (something else I warn about in regularly in my articles) to recommend a product that could literally fail based on the performance of a single holding. These products are wrapped up and sold in a way that can, on the surface, make them look low risk, but they also clearly state on the literature ‘For Professional Investors Only’.

What happened to the victims of CWM would be impossible in a correctly structured portfolio, which is why week after week in my articles and radio interviews I try to spread this essential message. Financial advisors in Spain are still selling structured notes, and indeed certain non-FCA regulated funds, that are paying them commissions to recommend them. This practice is illegal in the UK, but currently the only way we can stop it happening in Spain is through education.

There is a way to approach investing in a prudent and secure manner, and you should never be afraid to ask your advisor very detailed questions before signing any paperwork. If you have doubts or feel certain questions are being avoided, then perhaps it would be better to seek advice elsewhere.

What the victims of CWM are going through right now is devastating, and the actions of those advisors is simply unforgivable. There is a support group set up for anyone who may have been affected by CWM at www.pension-life.com or contact them via email on [email protected].

Anyone who may be considering a new investment or pension transfer here in Spain should consider attending The Finance Tour on November 7th, 8th & 9th in Calpe, Javea, Oliva and Orihuela Costa. I am very proud to say that as of this week, I have been asked to join the prestigious panel, and will be available to answer all your questions on the day, alongside speakers from The Prudential, Rathbones, London & Colonial and a local tax and law firm. Attendance is free, so visit www.thefinancetour.com or call 693 107 044 today for bookings and information.

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