Malta’s Arbiter for Financial Services has concluded that Momentum Pensions Malta was partly responsible for the losses suffered by clients of defunct advice firm Continental Wealth Management (CWM).
The 82-page document outlines the grievances of the 55 complainants and the rebuttals from Momentum.
A spokesperson for Momentum confirmed to International Adviser that the firm “will be exercising our right to appeal”.
Unsuitable underlying investments
The cases were combined as they revolved around similar issues:
- CWM was the indicated adviser in relation to the underlying investment of the retirement scheme;
- The portfolios held substantial investments in structured notes; and,
- Common alleged failures made against Momentum.
When it comes to the third point, the complainants said Momentum, which is not licensed to provide investment advice, accepted business from CWM, which was an unlicensed investment adviser.
Momentum is also accused of allowing an unsuitable portfolio of underlying investments to be created within the retirement scheme.
The portfolio comprised high-risk structured products of a non-retail nature, which conflicted with the risk profiles of the scheme members.
The complainants also accused Momentum of failing to provide them with adequate information.
No financial gain
Momentum rejected the allegations, stating that the complainants appointed CWM to act as their adviser, which was responsible for the risk profiling and selection of investments.
It added that, as Momentum operates on a fixed fee basis, it did not stand to make any gain or benefit from a particular investment.
The firm added that the complaints were being made against Momentum as it was still in operation, unlike CWM.
CWM was registered in Spain but collapsed in 2017. It was authorised to trade in Spain and France by Trafalgar International.
In response to allegations that CWM was unlicensed, Momentum stated that Trafalgar was licensed as an insurance intermediary and consultant, as well as an investment intermediary, and pointed to documentation it had provided to the Malta Financial Services Authority (MFSA).
Momentum stated that it had fulfilled all its obligations with respect to the complainants and had not acted negligently.
Structured products
In summation, the arbiter spent considerable time on the subject of structured notes.
“Indeed, the arbiter considers that the high exposure to structured products and single issuers in the complainants’ respective portfolio jarred and did not reflect to varying degrees with one or more of [Momentum’s] own investment guidelines applicable at the time when the investment were made,” he wrote.
He continued: “It is, therefore, considered that there is sufficient evidence resulting from multiple instances which show that the respective portfolio generally included investments not appropriate and suitable for retail clients.
“It is clear that there was a lack of consideration by [Momentum] with respect to the suitability and target investor of the structured notes.
“Such lack of consideration is not reflective of the principle of acting with ‘due skill, care and diligence’ and ‘in the best interests of’ members as the relevant laws and rules […] obliged [Momentum] to do.”
Conclusions
“The actual cause of the losses experienced by the complainants on their respective accounts with the retirement scheme cannot just be attributed to the under-performance of the investments as a result of general market and investment risks and/or the issues alleged against one of the structured note providers, as [Momentum] has inter alia suggested in these proceedings.”
“There is sufficient and convincing evidence of deficiencies on the part of [Momentum] in the undertaking of its obligations and duties as trustee and retirement scheme administrator of the scheme.”
The arbiter stated that this is “amply highlighted” in the evidence outlined in the 82-page document.
“It is also evidently clear that such deficiencies prevented the losses from being minimised and in a way contributed in part to the losses experienced.”
He added: “Whilst the retirement scheme administrator was not responsible to provide investment advice to the complainants, [they] had clear duties to check and ensure that the portfolio composition recommended by the investment adviser provided a suitable level of diversification and was inter alia in line with the applicable requirements in order to ensure that the portfolio composition was one enabling the aim of the retirement scheme to be achieved with the necessary prudence required in respect of a pension scheme.”
The arbiter concluded that the complaint was “fair, equitable and reasonable”.
But, taking into account the role and responsibilities of CWM, “the arbiter considers that [Momentum] is to be only partially held responsible for the losses incurred.”
Momentum has been ordered to pay complainants 70% of the “net realised losses sustained on their investment portfolio”.
Plan to appeal
The Momentum spokesperson told IA: “Momentum Pensions Malta has worked with customers affected by the collapse of Continental Wealth Management in 2017 and has supported them where it can.
“As the trustee and retirement scheme administrator, we did not provide investment advice and always ensured that scheme investments were executed in accordance with Malta regulatory requirements.
“The arbiter rejected eight of the individual cases where members were advised by Continental Wealth Management and upheld a further 46, with a partial liability imposed on Momentum.
“Subject to further advice we will be exercising our right to appeal and look forward to the results of a full legal analysis of the issue in the appeal courts.
“Momentum Pensions maintains the highest standards in delivering its responsibilities as a trustee and retirement scheme administrator,” the spokesperson added.
