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Sipp provider to appeal FOS court victory

Appeal-Court-High-Court-Building--700x450.jpgEmbattled Sipp provider Berkeley Burke is appealing a ruling saying it failed to vet unregulated investments for one of its clients.

Last year, the High Court heard a judicial review in a longstanding dispute between Berkeley Burke Sipp Administration and the Financial Ombudsman Service.

In the judicial review Judge Jacobs upheld a 2014 FOS decision against Berkeley Burke for failing to carry out adequate due diligence on a £29,000 unregulated collective investment scheme for a client, called Mr Charlton.

The judgment is important as it establishes with greater certainty that Sipp providers have a duty of care to vet unregulated investments for their clients.

Money Marketing reported on the case where legal representatives for the claimant Berkeley Burke said FOS’s decision was legally incorrect.

Now Berkley Burke Sipp Administration has applied to appeal the decision and expects to hear within a couple of weeks whether its submission has been granted.

It says the FOS decision and the subsequent appeal process is solely in relation to the Sipp administration business and has no bearing on the separately-run Berkeley Burke group of companies with their own clients.

In a statement given exclusively to Money Marketing Berkeley Burke Sipp Administration says: “The entire Sipp industry, platform providers included, are wondering who will be next in line for a claim brought by someone unhappy about the outcome of an investment that may have even been made 10, 20, 30 years ago or more even if simply transferred over in specie in person or via an IFA, for someone else to manage.

“Those with the largest funds under management and therefore the deepest pockets will be in the line of sight for professional claims hunters.”

The statement also criticises the FCA’s Dear CEO letter sent to Sipp operators to draw attention to High Court claims against Sipp providers Berkeley Burke and Carey Pensions.

It says: “What has been the impact of the Dear CEO letter sent out by the FCA within minutes of the Berkeley Burke Sipp Administration judicial review decision? It has had the opposite effect to that intended. The FCA, whose job is to offer protection and certainty in the shared space between operators and consumers, has opened up further uncertainty.”

Berkeley Burke Sipp Administration adds: “The effect of the FOS ruling will have more unmanageable pain. Unless overturned by appeal it will result in that reduction going far beyond that stated aim and most likely spill over into a reduction of other execution-only services, including those involved in the far larger market of non Sipp-wrapped stocks and shares trading.”

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A judicial review into a Financial Ombudsman Service determination that will have wide implications for Sipp providers is due to be heard in London this autumn, Money Marketing can reveal. The case concerns a longstanding dispute between Berkeley Burke Sipp Administration and the FOS. In 2014, the FOS ruled against Berkeley Burke for failing to […]

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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Andrew Cartlidge 28th January 2019 at 3:27 pm

    I am unaware of all the facts in the Berkeley Burke litigation, but on any reasonable view, the role of SIPP administrator is normally readily distinguishable from that of investment adviser. The client’s retained investment adviser owes the duty of care for the suitability of the investments selected to satisfy the client’s individual attitude to risk, financial circumstances, investment objectives etc. The investment adviser also owes a duty of care in terms of the attributes of the investment concerned and the credentials of those managing/promoting it. If the client self-manages/selects his investments, then he has nobody to blame but himself if he selects badly. No third party owes him a duty of care in that circumstance – least of all the SIPP administrator/provider, as there is normally a clear separation of responsibilities. In permitting particular investments, the only role of the SIPP administrator/provider is to determine that investments satisfy HMRC requirements and are bona fide. Their suitability or otherwise for individual investors – or indeed investors in general – is not a judgement the SIPP provider is responsible for making. If SIPP providers are deemed to have such duties of care – then access to esoteric investments of the very type SIPPs were intended to provide will be removed by virtually all. Esoteric investments require a considerable degree of due diligence when researched/recommended – and as we are finding, too many advisory firms have been gullible and rash in what they have been prepared to recommend, whilst being incapable of (or unwilling to) undertake necessary and meaningful due diligence, before passing judgement as to whether or not particular investments can prudently be recommended to their clients. ‘The client wanted….’ is usually no defence, as poor quality illiquid investments have too often been introduced and encouraged. None of this makes SIPP providers liable for providing access to ‘poor’ investments at the behest of clients, nor their advisers.

    • Not the FOS’s view at all. In fact, they were quite specific in their decision about what the SIPP administrator should have done (and the judge agreed), namely:

      Identified SA (the investment in question) as a high-risk, speculative and non-standard investment, so it should have carried out sufficient due diligence.

      Considered whether SA was appropriate for a pension scheme.

      Ensured that the investment was genuine and not a scam, or linked to fraudulent activity.

      Independently verified that SA’s assets were real and secure, and the investment operated as claimed.

      Ensured that the investment could be independently valued, both at point of purchase and subsequently.

      Ensured Mr C’s SIPP wouldn’t become a vehicle for a high-risk and speculative investment that wasn’t a secure asset, and could be a scam.

      The FOS said this was good practice and within the expectations of the rules (in particular Principles 2 & 6) at the time of the investment in 2011, i.e. there was no application of hindsight here.

  2. The SIPP provider has never met the client, and has no idea about his or her circumstances. If the provider is then deemed to be responsible for the suitability of any unregulated investment, it is but a short step to that provider being responsible for the suitability of all investments, given that many regulated investments also carry substantial risks. That step would, in advised cases, make two parties responsible for the suitability test, which would be utterly absurd. But in all cases, the SIPP provider’s costs would be substantial. Those costs would flow through to prices. The SIPP would have a front end load to make your eyes water, ruling it out for all but the biggest investors. This outcome is so manifestly ludicrous that the regulator may well pursue it.

    • This is not about suitability but about simple basic due diligence on assets suitable to be held in a pension scheme.

      Guidance was clear that providers and distributors will be judged by what they do and do not do in respect of treating customers fairly throughout the distribution chain.

      The trustees have a clear responsibility to ensure the scheme is not used as a vehicle for scams.

      • You are right that it is not about suitability. However, there is nothing simple about the list of expected actions produced by the FOS. What is simple is that if the FOS are correct then this business is not viable. Furthermore, if this was so obvious to regulators and Ombudsmen then why wasn’t it spelt out beforehand to save clients and firms all this worry and strife?

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