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Advisers criticise FSCS over ‘unfair’ Sipp stance

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.

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. We now have a situation in this country where clients can make bad/ stupid decisions and the profession is left to pick up the tab. If you want evidence of a world gone mad you need look no further.

  2. We are like a cash cow to be milked in all eventualities and for any loss. Does anyone have any real power to bring these fools to account!

  3. Another indication, not that we really needed it, that the regulator and its satellite subsidiaries are running roughshod over the lives of advisers regardless of whether those advisers have done anything wrong.

    As Simon stated, the world is mad and Canary Wharf and its various sub-stations are the largest asylums

  4. I’m apoplectic (perhaps that means I can claim on my CI cover? – rhetorical question). I agree with all of the above comments. Perhaps the regulator might think of barring the advisers concerned, for a change? It might make me feel slightly better when invoiced for a 73% levy increase. In the meantime perhaps a few hundred hours of community service wouldn’t go amiss. My breath is unheld.

  5. What is the position to challenge the FSCS Decision.
    Surely APFA should be doing something.

    This type of claim which after all is an unregulated product is an example of the worst type of abuse of the Compensation scheme.

    Why should the FSCS be allowed to use its discretion in allowing this type of claim.
    Surely the Compensation scheme was not set up to cover this.

    Because the FSCS has so much power and discretion, you would think that they would carefully consider the impact on the adviser community.

    We cant be expected to cover losses for schemes that are not regulated.
    What oversight is there of the FSCS and how do we hold them to account?

  6. I have this week encountered a client determined to invest in a “unregulated” investment offering 15.5% per annum return from an unauthorised “adviser” (previous history is from a firm no longer authorised and insolvent due to FSCS claims) using a SSAS from an unregulated firm. As much as I continue to point out that there may be a risk here and something which my firm would not authorise/ approve he seems to be really keen to proceed!
    We should be afraid…really afraid!

  7. @Jabba – Sounds like the consumer is being a 6 on my stupidity scale……
    I hope you have also sent details to the FCA and the FSCS so the FSCS cannot try and dump the liability on the advisory sector when it all goes wrong?
    If you could get a 15% return and you were the company with this wonderful idea, you would go to your bank and borrow at less than 15% to invest in the business yourself and keep all the money. The fact no bank would lend these people the money probably suggests it is a very high risk proposition and it is the investor taking the risk, not the unregulated promoter of the unregulated investment.
    A fool and his money are easily parted.

  8. “Some are born mad, some achieve madness, and some have madness thrust upon ’em.” We have madness thrust upon us!

  9. It is a question that has taxed my brain for some time, if something is that good why tell anybody else, keep it all to yourself.

    In my book these are criminal acts, outside the realms of the regulated advisory community, and should be dealt with as with any other case of fraud. If consumers get the message that they are not protected for unregulated investments they may think twice, and confiscation of assets to pay compensation is a far more equitable remedy than stealing more money from hard working, honest advisers.

    The FCA have a responsibility to improve consumer education and trust in the financial services industry, they are failing the people they are meant to serve. Sorry, I forgot, they are self serving.

  10. This is scandalous.

    Why isn’t the FCA being more pro-active – we have all seen the adverts for seminars on ‘investments’/adverts for investment offering guaranteed returns of over 15% per annum in the press and yet nothing appears to be done and it is the industry that is left to pick up the tab.

  11. While I understand the logic of “advice” being regulated, even if the product is not regulated, it can lead to some absurd results. This is clearly unfair that the sensible advisers who do not recommend these unregulated products have to pick up the tab.

    It is about time that the FCA create a special permission that is compulsory for advice on unregulated products. These are not simple products and it is exceptionally difficult to do sufficient due diligence where the only source of information is the product provider.

    This would do a lot to protect our industry from these scandals.

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