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Editor’s note: Sipp providers must avoid the web of DB transfer scandals

I apologise if you are bored of hearing about defined benefit transfers by now. Really, I do. There are plenty of times when I wish I didn’t have to dedicate hours of my day to covering negative developments in the market. But, yet again, I feel like my hand has been forced this week.

New data has shown that transfer volumes are up once more, now running into six figures a year. More importantly, however, we have uncovered details that the Financial Ombudsman Service had been sitting on a number of complaints while the FCA decided on exactly how compensation for DB transfers should be dealt with.

This, combined with two impending legal cases against Sipp providers over non-standard investments, and a new redress methodology that is likely to result in higher payouts, means that we have by no means seen the end of consumer complaints over transfers.

The consequences for Sipp providers could be severe indeed. Claims management companies are going to have a field day if either of those two cases go against the Sipp providers, essentially holding them liable for the failure of underlying investments. While IFAs hate to admit it, they are actually quite difficult to chase when it comes to DB transfer claims. It is hard to fight the weight of a lengthy suitability report, sophisticated investor declaration, and maybe even an insistent client sign-off, when the right recommendation in any particular transfer case divides opinion even among expert advisers.

Claims management companies are going to have a field day if either of the two legal cases go against the Sipp providers

But non-existent or minimal due diligence on behalf of a Sipp provider, resulting in provable losses from some dodgy-looking overseas oil plantation or car parking scheme that collapsed? Sounds like an open goal to me. A number of Sipp providers have already collapsed this year. Clearly, capital adequacy requirements won’t be sufficient to stop a whole host more liabilities falling on the Financial Services Compensation Scheme should more be caught up in the worst of the DB transfer web.

This isn’t just an issue bedeviling bizarre, niche providers you have never heard of. Just look at the trouble James Hay, a familiar name with IFAs, has got itself into over biofuel scheme investments. It would be wise for other Sipp providers to follow where James Hay has led and remove unregulated investments from their approved lists entirely, or decline any non-advised approaches from unregulated introducer firms as a matter of principle.

Make no mistake, there is more pressure ahead for Sipp providers as DB transfer claims continue apace. They must be ready to ensure they mitigate the worst of the storm to come.

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Comments

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  1. Justin,

    Unfortunately, it’s too late for a number of full SIPP providers who continued to ignore the bright red flags and flashing warning signals. The British Steelworkers issue highlights that a number of SIPP providers have still been willing to accept business via unregulated introducers and dodgy advisers, as well as allowing the transferred funds to be placed in unregulated investments, or in the case of Strand Capital and Gallium, dodgy DFM’s that should never have passed third party due diligence checks. Strand Capital who have now gone into administration had over 1000 SIPP clients, mostly invested in a dodgy property bond and many of these clients transferred from final salary arrangements, including a high number of ex BS pension scheme members. Most of these members will now have lost significant sums as a result of poor advice and due diligence failings. Whilst not all SIPP providers have chased quantity over quality, there are now very few well managed SIPP providers, with clean books, financial strength and appropriate trustee governance and robust compliance oversight (historical and current). IFAs must now be very wary of who they place future new business with and would be well advised to source a secure long term provider asap to transfer existing SIPP clients to.

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