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.