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FSCS to pay out for failed investments on Sipp advice claims

The Financial Services Compensation Scheme is to start paying compensation for losses in the value of investments held in Sipps, as part of claims about advice to transfer pensions into Sipps.

Previously, the FSCS would only compensate consumers making claims about advice to switch to a Sipp for lost pension growth and charges.

Now it says it will consider claims for investment losses resulting from the advice, up to its investment limit of £50,000.

The FSCS says these claims will mainly relate to Harlequin Hotels and Resorts, Sustainable AgroEnergy and Green Oil Plantations. Claims relating to other investments held in Sipps will be considered on a case-by-case basis.

In July, the FSCS said it had declared four advice firms in default as a result of its investigations into Sipp claims: TailorMade Independent, 1 Stop Financial Services, Kynaston-Carnoustie Financial Consultancy and Crawford Scott.

It says the latest update applies to any adviser involved in advising investors to transfer their pensions to a Sipp where the fund is then invested in non-standard asset classes.

The FSCS says it is too early to say how much it expects to pay out for such claims.

Last month, the FSCS’s plan and budget for 2015/16 revealed the levy for life and pensions intermediaries is set to increase from £33m to £57m.

The lifeboat scheme said: “The FSCS is seeing increasing volumes of claims in relation to pensions advice, particularly claims in relation to advice to invest into Sipps. We expect this trend to continue and there is considerable uncertainty as to the amount of compensation we may have to pay in relation to these claims.”


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There are 23 comments at the moment, we would love to hear your opinion too.

  1. Can I become a part of a sub-division of the FSCS, for firms who only invest in proper products with proper providers please? Getting sick of this now!!

  2. Client Comes First 18th February 2015 at 10:58 am

    What is the point having a trustee company oversee the investments made within a Sipp if the responsibility is then placed on to the FSCS. The crooks who earn 10% commission then run for the hills leaving decent IFAs who wouldn’t touch Harlequin, as an example, to pick up the 100% tab.
    SIPP trustees take some responsibility.

  3. Well the pigeons have finally come home to rest! I always suspected that the Financial Services Compensation Scheme would bottle out and that Tailor-made would get away with this but I don’t agree the bill should be parked on the rest of us. They cleverly had 2 companies – one unregulated selling Sipp investments like Oil, and properties and one regulated. The directors should be personally sued rather than park it on the IFA community as a levy.

  4. If these sorts of claims are ending up now at the FSCS, surely its not too much for the FCA to start banning any ‘adviser’ who recommended these products under the ‘unsuitability’ rules. How many of these people have phoenixed and are perfectly free to do something similar in the future?

  5. I like many find it incredible that these investments are now becoming claims on the FSCS as they were unregulated investments or supposedly so. After all isn’t the FSCS meant to pay compensation for the failure of REGULATED products only or has somebody simply rewritten the rules?

    I know that the consumers would say that they purchased a pension and that the firms that gave the advice were regulated but this type of investment is clearly unregulated and therefore should not be entitled to compensation under the FSCS. I feel sorry for the consumers but we really do have to keep to the rules instead of rewriting them and applying them retrospectively. I wonder how many claims we going to have for tax advice if this is allowed to stand.

    I like many reported Harlequin to the authorities as long ago as 2009, as I believe that they were breaking advice rules in connection with pensions, so the FSA cannot claim that they did not know what was going on in connection with Harlequin. Needless to say the FSA did not investigate as they stated it was unregulated it could not take any action, so why are we having to pay compensation if it is unregulated.

    We need to make sure that the rules are there to not only to protect consumer rights but also to protect honest hard-working advisers left in the profession. I believe it is becoming unfair on the majority of advisers who do the right thing who find themselve left paying higher fees for those who have behave badly. We should not forget that ultimately these higher costs are passed onto future consumers who may find themselves priced out of receiving high quality financial advice.

    It also does not bode well for the new government backed guidance advice service as providers of this type do not pay into FSCS, so when these providers get their guidance wrong who is going to have to compensate the consumer when a product fails – the government maybe? This is probably the most important question that needs to be asked by the adviser community, as I for one don’t want to be held liable for so-called guidance advice.

    So when Paul Lewis states that IFA’s should not expect to own the title financial advice, my answer to him is that we do because we pay for it and if he would like to contribute to the FSCS you will be entitled to call yourself a Financial Adviser as well.

  6. Steve D I totally agree and have been stating for years that the FSCS should only cover regulated products and funds.

    We are seen as the industries “O well, Never Mind have some money”, fund. I am sick of paying levies for other advisers who take unnecessary risk into unregulated products, most of which have been arranged due to the HIGH commissions they used to pay.

    There needs to be a review of non regulated products that should be regulated and then limit the FSCS to regulated products only. Its about time the regulator got off its backside and sorted this out, but then why would they, its not costing them a penny even though this is their failing. Yes their failing as this is not the first time this sort of think has happened.

  7. @Steve D – completely right.

    Those of us that advise on standard fair should be in a different FSCS category from those that want to do high risk stuff. Why should my fund based investment clients be paying extra advice fees to fund these muppets?

  8. If I have a conversation in a pub with an IFA & he reckons an e-type Jag is a good investment & it then blows up can I get compensation from the FSCS.
    OK obviously not but actually there is very little difference between my example above & the claim on an unregulated product

  9. I suspect this is actually ultra vires and all that other lawyer b@@@@@@@ucks, but bearing in mind if we chose to pay a lawyer to fight the FSCS over this tax on OUR regulated clients, we’d be paying a lawyer for the FSCS too and NONE of the F-pack staff have any skin in the game, we’re on a hiding to nothing.

    As I have said in other posts this week, I think it could be time for advisers to refuse to pay, but the chance of a significant number of advisers showing enough Ed’s (not Millipede the other one) to do it is slim to nothing.

  10. Absolutely flabbergasted that such “Unregulated advice” complaints can land on our door step, whilst the banks are being allowed to walk away from their Hedging Loan products, disgusting

  11. Once again the powers that be overstep their remit.

    Client goes to seminar extoling the virtues of unregulated investment and their greed kicks in.

    They then arrange for a pension transfer into a SIPP.

    They make the decision to invest in the unregulated product and yet the industry picks up the tab?

  12. If the advice is bad you are required to make amends.

  13. I hope that every single adviser who did give advice on this losers their licence!!

  14. @Peter – I hope to too, BUT

    the advice to transfer to a SIPP and the advice to invest in an unregulated product may be totally unrelated as you can hold practically anything you like in a SIPP (for self investment) and if I client says I want to have 99% of my investments in mainstream funds, and then 1% I want to be able to play with, it would be BAD advice to advise having a PPP for 99% and then a SIPP for the balance of 1%.

    as I said earlier, as a firm, our normal practice is to recommend a SPP or PPP and NOT a SIPP as that way a consumer cannot go off and self invest without us knowing. We’re protecting themselves from their own stupidity by doing this.

  15. How many advisers believe that selling an unregulated product means they aren’t providing “regulated advice”? Judging by the comments on here you would be forgiven for thinking most of them do.

  16. @EM – I hope you are not including me in that comment?

  17. Em, I think the main point everyone is making is that the advice may well be regulated but why should the compensation lie at the FSCS and ultimately our door ? Assuming the advisor has done his job properly he will have informed the client that the investment recommended is not covered by the FSCS, on that basis the liability for the advice should rest totally with him/her and the relevant PI company.
    I forgive you were I am concerned

  18. I was thinking last year of having a grading system for insistent clients and calling it my
    “Stupid Service”.

    It uses a scale of 1 to 6

    1.I advise you to do this

    2.This is one of the options I thought of, but not what I would recommend

    3.I would not recommend this, but nor would I advise against.

    4.I think you are being silly, but on your head be it.

    5. I think it a stupid idea, but I can only advise against. I will do it if you insist.

    6. You are insane, find someone else who is too if you want to do that

    In all my years I have only actually had 2 no 6’s. They were still nice people but they were a drain emotionally. I have one who is teetering at no 4, but I like him, so will try to keep working with him.

  19. @Phil Castle
    Options 1 & 6 are the only safe ones to act on, the rest are FCA/FOS fodder…

  20. @GA – You may well be right, but having never had a complaint about my firm at the FOS I swill have to take your word for it.
    My aim has always been to avoid having a complain tin the first place and to resolve any misunderstanding the day I first become aware of it (if I can)

  21. @Phil Castle
    With the pension changes there are likely to be many more advisers tempted into options 2-5. This is a review waiting to happen 3-5 years down the line. It won’t be a happy ending.

  22. @GA – I agree with you re the tempted.

    I have just tested the waters with two people.

    One a Long term client (ongoing service) and one a customer (transactional, but I have known for years).

    Neither have gone as well as I would have liked, but the former was resolved with 5 mins (client ahd forgotten what I said last year). the latter could easily end up a complaint, despite the fact it is actually that HMRC have deducted tax and will refund it in 2 months time. He simply didn’t LISTEN to the fact I said two weeks ago we and the provider cannot control the tax code applied to his payments, but HMRC will resolve it after the end of the tax year. This was pro bono work and I will not be able to risk doing anymore based on what nearly happened.

    It looks likely advisers will have to turn away requests directed from PensionWise if CAB can’t see them as we can’t take the business risk associated with small fund values.

  23. what happens when they have took your money, there is no movement or any growth in the place its invested. The only movement is letters continually coming to me saying theyve taken x amount of pounds for admin. My fund is almost empty and i have no way of continuing payments for admin . I feel duped and deflated

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