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Malcolm McLean: Beware the gathering Sipp storm

The news that Sipp provider GPC Sipp is facing around 150 legal claims for compensation in relation to losses incurred from unregulated investments in the Harlequin property fund will be ringing alarm bells in many offices.

The case is expected to enter the courts early next year and follows a number of other yet-to-be-concluded court cases against Sipp providers, which also centre on failed unregulated investments, often facilitated in concentrations via unregulated introducers.

In one of the cases, a Sipp provider is challenging a Financial Ombudsman Service decision from 2014 that it had to compensate a client after it failed to carry out adviser-style due diligence on his investment.

In another case along similar lines, a provider is arguing it was not responsible for the client’s failed investments as the client had invested on an execution-only basis and signed a contract saying it was his choice to do so.

The FCA has participated in both of these cases, expressing the view that a Sipp firm cannot escape its duty of care towards its clients, regardless of whether the business was written on an advised or non-advised basis.

FCA draws red lines against Sipp providers in judicial review

The outcome of these cases could have profound implications for the Sipp industry. According to some insiders, if it goes the wrong way, it could lead to a large-scale winding up of Sipps, leaving significantly fewer full Sipp providers in the marketplace than there are today.

And for those that continue in business, many will probably need to fundamentally review the way their Sipps are set up and run – in particular, if all unregulated investments into Sipps are banned and/or no investments are permitted via unregulated introducers.

The FCA is arguing that acquiring assets in a Sipp forms part of operating the Sipp and this gives providers a duty to vet all the investments made. This duty and the responsibility it conveys would be classified as a regulated activity under the Financial Services and Markets Act 2000, with all that means for both the provider and the client.

Money Marketing’s in-depth coverage of the Sipp market

In the meantime, advisers and providers dealing with self-invested pensions must be on their guard. Claims management companies appear to be shifting their attention to the space as the deadline for PPI claims approaches.

According to some reports, the claims management industry is visibly trawling for prospective clients in the self-invested market, although the extent to which a Sipp is actually self-invested and where the boundaries lie should serve to limit the extent of their success.

That said, both FOS and Financial Services Compensation Scheme complaints linked to Sipps are on the rise.

This is all part of the gathering storm currently afflicting the Sipp market and it could yet get worse before it gets better. Let’s hope for calmer days to come, with a clearer picture emerging as to the way ahead for this important, but currently beleaguered, part of our industry.

Malcolm McLean is senior consultant at Barnett Waddingham

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. It’ll be a painful few years as levies will surely just keep increasing to fund the FSCS. A lot of customers didn’t need a SIPP and were negligently and sometimes fraudulently advised and it’s right they’re compensated, but it’s an endless source of frustration that those responsible can pass on the liability to the honest advisers.

    As a number of providers fall by the wayside (because there’s only one way these Court cases will go to be honest) the bigger firms will hoover up the profitable SIPPs and leave the dodgy ones for the FSCS to deal with.

    We’ve already seen Burkeley Burke split their SIPPs client book into those with and those without unregulated investments. The “good” ones will inevitably get sold on, the “bad” ones will be chucked in the bin for the FSCS to deal with.

    The FCA should clamp down hard on this and the age old problem of phoenixing but I won’t hold my breath!

  2. So for those where there was ‘advice’ in the regulated sense, then it should not fall on the SIPP provider, it should fall on the advisory firm, with the ongoing consequences thereof.

    For those where no ‘advice’ was given then to make the SIPP provider liable is to ban such investments from SIPPS by the back door. Surely if that is the regulatory direction of travel a more honest ‘nothing unregulated except for immovable property with a land registry title’ regulation would be a better answer. Let’s not ‘pretend’ that SIPPs are wide investment powers products if they are not going to be in reality. The coming fudge will do little to deter the dodgy (who will simply register their own SIPP for a short while), whilst closing the door to the legitimate.

    That is not what regulation is intended to achieve.

  3. Julian Stevens 2nd July 2018 at 9:36 am

    Surely this is a direct consequence of the FCA’s abject failure to practise proportionate and appropriately targeted regulation in the form of identifying, homing in on and taking action against the small minority of rogue firms flogging totally unsuitable toxic junk, almost certainly without relevant PII cover. It only takes one claim to break them and then their liabilities fall on the rest of us by way of the FSCS. But only up to £50,000 per claim, which is shamefully cold comfort for a victim who, thanks to manifest dereliction of duty on the part of the regulator, has seen their CETV of £500,000 go down the drain.

    But no one at the FCA is ever held to account. What is needed is a formal parliamentary enquiry and a class action against the FCA. See https://www.fca.org.uk/about. How can the FCA possibly argue that it remotely lives up to these claims? It’s a disgrace.

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