The Financial Services Compensation Scheme’s decision to levy advisers for investment failures as part of claims about Sipp advice has been branded “unfair” by the industry.
In an update last week, the FSCS said it will start paying compensation for losses in the value of investments held in Sipps, as part of claims about advice to transfer pensions into Sipps.
Previously, the FSCS would only compensate consumers making claims about advice to switch to a Sipp for lost pension growth and charges.
It will pay out a maximum of £50,000 per investment claim, the costs of which will fall on the life and pensions intermediation class.
Last month, the FSCS’s plan and budget for 2015/16 revealed the levy for life and pensions intermediaries is set to increase from £33m in 2014/15 to £57m.
The FSCS says the investment claims will mainly relate to Harlequin Hotels and Resorts, Sustainable AgroEnergy and Green Oil Plantations. Claims relating to other investments held in Sipps will be considered on a case-by-case basis.
It says it is too early to say how much it expects to pay out for such claims.
In July, the FSCS said it had declared four advice firms in default as a result of its investigations into Sipp claims: TailorMade Independent, 1 Stop Financial Services, Kynaston-Carnoustie Financial Consultancy and Crawford Scott.
It says the latest update applies to any adviser involved in advising investors to transfer their pensions to a Sipp where the fund is then invested in non-standard asset classes.
Essential IFA managing director Peter Herd says: “I find it incredible that these investments are now becoming claims on the FSCS when they were unregulated.
“It is unfair on the majority of advisers who do the right thing to be left paying higher fees for those who have behaved badly. This does not bode well for the Government’s at-retirement guidance service, because who will compensate consumers when a product fails?”
Basi & Basi Financial Planning managing director Michael Basi adds: “We did not recommend any of these investments, but some firms will have done as the FCA only made clear its position on Sipps and underlying investments relatively recently.
“For that policy to be applied to FSCS claims retrospectively is unfair.”
In January 2013, the FCA raised concerns that some firms were advising on pension transfers to Sipps without assessing the suitability of the underlying investments. Last April it issued a further warning about “serious and ongoing” Sipp advice failings.
An FSCS spokeswoman says: “In reaching our decision on Sipps we had regard for the FCA’s alerts on the subject, including the one issued in April. We consider that the FSCS’s approach is consistent with the FCA’s view of the responsibilities of advisers.”
Foot Anstey solicitor Alan Hughes says: “The key issue is that there were some advisers out there purporting to advise on the Sipp wrapper only and not the underlying investments, in full knowledge that the whole reason for the transfer was to change the investments.
“The FCA has said that is unacceptable and the FSCS has decided to follow that line.”
He says the move is likely to lead to a “significant” increase in the compensation paid out in relation to Sipp transfers.
Sustainable AgroEnergy products were sold to around 1,500 UK investors who invested £23m, primarily through Sipps.
In December three men were jailed for their part in fraudulently selling and promoting the products based on “green biofuel” Jatropha tree plantations in Cambodia.