Categories
Final Salary/ Defined Benefit

Brite Advisors South Africa Transfer

Summary

It appears that Brite South Africa (Brite SA) has sold/transferred their client bank to a new financial adviser/services firm, named 1.618 Financial services (1.618). This is a transfer of the existing servicing agreements and is not a sale of client funds, or anything along those lines.

The receivers are not privy to any contracts that have been exchanged, and are merely providing a summary of what they know. They are not providing any view on it, and their update is merely designed to help clarify some matters and answer some FAQ.

There are some basic updates they have provided, including:

  • They have not seen any contracts for the sale, nor has there been any contractual agreement made between the 1.618 and Brite Advisors;
  • They will not be providing any updates to 1.618, and will continue to communicate directly with the Trustees and Beneficiaries;
  • Not having a financial adviser will not stop you from receiving updates from the Receivers, as these are made directly to the Trustees and Beneficiaries, and not just the financial adviser;
  • Investment statements provided to Brite clients are not accurate, as they do not reconcile with actual client funds held, and any investment statements provided since the Receivership began can not be relied upon for accuracy;
  • You do not have to utilise 1.618 as your adviser firm, and are free to select another adviser, or continue without one, especially for the time being;
  • Client AUM is still fully under the Receivers control, and this sale/transfer has not done anything to change the custody or control of the funds. This transfer was purely for the servicing of Brite SA clients, as Brite SA will no longer continue as a going concern; and
  • No advisory fees will be deducted from investments by the receiver, as the Receivers do not consider the Court has given them the powers to permit advisory fees to be paid from client AUM.

Our Thoughts

We believe that the key takeaway for Brite SA clients is that they should not feel beholden to move to 1.618 and accept ongoing advice and other services from them, just because Brite SA has transferred your servicing on to them.

If you liked and trusted your adviser at Brite, and they have moved to 1.618, then perhaps staying with them is a good option, but we would certainly recommend you keep your options open and explore what other advisers have to offer.

In the grand scheme of things, this apparent transfer will not have much impact on Brite SA clients, unless they stay with 1.618 and their new/existing adviser assigned to them. There is no obligation to stay with 1.618.

We would also note that many previous Brite SA advisers have taken up positions at other firms, and already solicited their previous clients, so it is clear that not all advisers will be moving to 1.618, and that some clients would have also not followed over to 1.618 already.

What to do now

Again, nothing much has really changed with this announcement, even for those who were clients of Brite SA. Just because the relationship you had has been technically moved over to 1.618, does not mean you have to continue you on with them, and we would, in your shoes, take this as an opportunity to reassess your entire financial planning situation.

Our guidance is the exact same it has been since the start, which is to go through the advice process with several financial advisers, compare their advice/ongoing service, and then choose the one you want to work with going forward, and appoint them as your financial advisor on your existing investment.

That decision won’t be final, and you can always choose another adviser/route down the road, but it will mean you are as far along in the advice process as possible, and right at the front of the proverbial queue, once the funds are released back to the Pension/yourself, to move to another provider/platform.

If you have not done so already, please feel free to book in to speak with one of our advisers on the link below.

Categories
Final Salary/ Defined Benefit

Brite Advisors ASIC – Appointment of Interim Fund Manager

Summary

The Receivers, McGrathNicol, sought, and have received, approval from the Court to appoint a Fund Manager to help manage the assets held on the Platform, whilst the Investigation continues. The main rationale for appointing a Fund manager focuses on the need to manage risks, preserve assets, and to help protect the interests of the beneficiaries.

Since the Platform has been down, client portfolios have been allowed to drift, via natural market movement, from their original weightings, and the Fund manager is there to realign the portfolios, and likely to increase the level of short term instruments held, to reduce the volatility of the portfolios, to help preserve asset values and shield them from large drops, before the funds are ready to be released back to the Beneficiaries.

The Fund Manager is going to take over management of the funds that are in the model portfolios, or at least were supposed to be in the model portfolios (as many Brite clients will have noted, their portfolios do not always match the portfolio they were originally put into, which has complicated the reconciliation process), but there are also many clients who had “bespoke” investments made at their request, and not specifically advised to purchase by a Brite Advisor. These investments will remain, and will not, according to the update, be changed.

Further to this, as confirmed via an update on 5th April, the manager and receiver will not accept or process any instructions on investments from Trustees or Beneficiaries. That is standard for any sort of Administration/Receivership, but the fact that the Receiver has had to release a specific update, is an indication that many clients/advisers are not aware of how Receivership works, nor have read previous statements from the Receiver that such requests will be summarily ignored.

Essentially, the fund manager is going to do two things: rebalance existing model portfolios back to their original weightings, and make sure that any excess cash is reinvested suitably. The Fund Manager will not have Discretionary authority, and all transactions will need to be approved by the Receivers.

Our Thoughts

This is a logical step for the Receivers to make, especially when you take on board how disjointed many client portfolios are, many with excessive cash balances earning minimal interest, all of which means the portfolios are not invested suitably for their beneficiaries risk profile.

Now, many of you who have spoken with Cameron James’ advisers will likely have already heard, or read between the lines, of our rather poor opinion of discretionary fund managers. However, most of that criticism is driven by their high fees and the high fees of the investments they make, not to mention that most of the evidence points to the vast majority of them providing below market returns, especially over any decent time period. However, they have a very limited scope in this situation, and are merely reinvesting back into already chosen model portfolios and/or reinvesting excess cash. The platform also only has access to very low-cost ETF’s, so there are no expensive actively managed funds for them to choose, which is usually where they do their best value destruction.

Whilst it will be important for the Receivers to make sure that the fees charged by the Fund Managers are reasonable, given the hopefully relatively short period of time they will be expected to be advising on the investments, and the limited scope they have, these fees should be not be too high. Although we won’t know just how material they are until they are disclosed, presumably in another update, once the new chosen fund manager has been formally appointed by the court.

What to do now

Again, there is not too much to take away from this announcement. Our guidance is the exact same it has been since the start, which is to go through the advice process with several financial advisers, compare their advice/ongoing service, and then choose the one you want to work with going forward, and appoint them as your financial advisor on your existing investment.

That decision won’t be final, and you can always choose another adviser/route down the road, but it will mean you are as far along in the advice process as possible, and right at the front of the proverbial queue, once the funds are released back to the Pension/yourself, to move to another provider/platform.

If you have not done so already, please feel free to book in to speak with one of our advisers on the link below.

Categories
Final Salary/ Defined Benefit

Brite Advisors USA Assets Segregation

Funds Segregation Summary

Brite Advisers USA (Brite USA) have been steadfast in their belief that Brite USA client funds are segregated from the rest of the Brite assets, and are not included in the funds for which Interactive Brokers have had the margin loans they provided secured upon.

However, the Receivers released an update on 29th February essentially categorically refuting that claim, and reconfirming their opinion that all the Brite funds are commingled, and any claims held over the Platform funds are on an aggregate basis, regardless of which Brite entity or beneficiary that specific accounts funds may be assigned to.

The Receivers are still completing their Client AUM reconciliation, but they have given no indication that they have obtained any documentation or evidence to support the claim that some of the client funds are segregated from the rest, despite many claims made to the contrary.

Whilst there was a new Interactive Brokers (IB) account opened in June 2021, and some of the client funds were indeed transferred, mainly involving Brite USA client funds, this was not a legal separation. There are various reasons given for this, including:

  • IB debt was secured against the entirety of the IB accounts, and this fund was merely effectively a new sub fund, within the same umbrella of funds. The IB debt agreement indicates that the debt is secured against all the accounts, and there is no particular IB account that has any different status;
  • there were already issues with client funds missing when this fund was set up, so the c.10% variance possibly already fully existed prior to the new account being set up;
  • the funds transferred in were not solely Brite USA client assets, as they were transferred from a commingled account that held assets on behalf of beneficiaries located in multiple jurisdictions; and
  • the new account was also held by the Australian entity, Brite Pty, and there was no legal document to indicate that these were segregated from the other accounts.

Our Thoughts

Our opinion has always been the case that it is very unlikely that any of the funds would be segregated from each other, especially given the comments made by the Receivers in regard to the very poor administration and record keeping implemented by Brite Pty.

This could change as the investigation continues, but by all accounts, it appears that any hopes of client funds not being secured on their assets, especially for those with Brite Advisors USA, are disappearing rapidly.

For those of you in the US, this will be disappointing, as Brite Advisors USA have likely filled you with false hope, even if you may have been always sceptical, that the c.10-15% haircut that may apply to client funds would not apply to you, and you were going to receive 100% of your funds back (minus receivership expenses etc). However, this does not appear to be the case, and you are very likely to be in the same boat as all the other non-Brite USA clients.

For those of you outside the US, this is likely comforting news, ironically, as it means that you will not be penalised even further by having to take a considerably larger haircut on your funds to repay the margin loans and the other sources of the missing asset balance.

What to do now

Again, nothing much has really changed with this announcement. Our guidance is the exact same it has been since the start, which is to go through the advice process with several financial advisers, compare their advice/ongoing service, and then choose the one you want to work with going forward, and appoint them as your financial advisor on your existing investment.

That decision won’t be final, and you can always choose another adviser/route down the road, but it will mean you are as far along in the advice process as possible, and right at the front of the proverbial queue, once the funds are released back to the Pension/yourself, to move to another provider/platform.

If you have not done so already, please feel free to book in to speak with one of our advisers on the link below.