Money Marketing has spent a lot of time with lawyers over the past few weeks. It’s pretty rare that a challenge to a Financial Ombudsman Service ruling goes all the way to the High Court, but that’s exactly where Sipp provider Berkeley Burke has taken its judicial review of a decision, essentially holding it accountable for the failure of high-risk investments.
At the time of writing, we were still waiting for the final ruling in a similar case involving fellow provider Carey Pensions, but have been reliably informed that it is due this week.
The cases might not have the high-octane hijinks or glossy finish of a TV legal drama. It’s pensions after all. But they are undeniably important for the future of the Sipp market.
Our lead feature this week looks at what would happen if the decisions went against the Sipp providers; if there was some kind of documentation saying they were, in fact, not just a wrapper house, but an investment manager too, with all the responsibilities that come with that.
While previous research from Money Marketing has shown that the proportion of non-standard assets held by most Sipp providers might be lower than the headlines give them credit for, that proportion is not negligible.
Sipp providers’ hands are also tied by the instructions of either clients or their advisers. If the rulings suggest they will become responsible for investment failures, it’s not as if they can just move all their holdings out of the highest-risk ones. That decision remains up to the investor.
Advisers face the same dilemma. If they trust Sipps to only allow responsible investments on to their books, but the courts put the suitability ball squarely back in the IFA’s court, finding another wrapper with the right requirements might prove tough, and will obviously incur costs in the transfer process.
The capital adequacy Sipp providers hold might take on a renewed importance, potentially cutting into profitability levels at the small firms that hold the most esoteric products. Does it make the case for an FCA-sanctioned white-listing of Sipp products?
It is important to note that the judicial review cannot itself set a precedent for how FOS decisions are made going forward. Rightly or wrongly, the FOS decides each individual case on its own merits, based on what it considers fair and reasonable in the circumstances, rather than appealing to some form of legal standard.
But that isn’t to say these rulings wouldn’t be in the back of any adjudicator’s mind when a client comes shouting they were missold a Sipp when the investments in it go sour. All sides of the market are keeping a keen watch for any hints of what defence to play.
Justin Cash is editor of Money Marketing. Follow him on Twitter @Justin_Cash_1