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Divine intervention? Liability concerns could see Sipp providers overrule transfer advice

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Sipp providers are facing tough decisions on whether or not to intervene in advisers’ recommendations, as they respond to increasing regulatory pressure to protect investors.

FCA warnings and recent Financial Ombudsman Service decisions are prompting some Sipp providers to intervene where they believe an adviser’s recommendation may not be suitable.

But experts say it is “dangerous” for providers to get involved in the advice process without having the full picture of a client’s circumstances.

One recent case illustrates the difficult judgment calls providers are having to make.

In a decision published this month, the FOS partially upheld a complaint against Sipp provider Cambridge May for refusing to accept a transfer from a final salary pension to a Sipp.

The client’s IFA had recommended the transfer in 2013, but after receiving the application form and suitability report Cambridge May asked to see a copy of the transfer value analysis. It then wrote to the client to say it would not accept the transfer, stating that according to regulatory guidance it should only consider a final salary transfer if it could provide evidence that it was in the client’s best interests.

Ombudsman David Ashley concluded that Cambridge May should not have taken as long as five weeks to tell the client it would not accept the transfer, and ordered it to pay £200 for inconvenience.

But he said: “Final salary schemes often provide very valuable guaranteed benefits that are lost on transfer. In this context, and given the firm’s potential liability, I didn’t think it was unreasonable for the firm to decide that it didn’t want to accept the business.”

The advice firm is not named in the decision, but Money Marketing understands it is TailorMade Independent, which was declared in default last year. In March the regulator banned and fined former TailorMade directors Lloyd Pope and Peter Legerton.

The firm advised 1,600 customers to invest £112m in unregulated investments via Sipps between 2010 and 2013.

More than half of the firm’s customers invested in overseas property operated by the Harlequin group of companies, which is under investigation by the Serious Fraud Office.


Fidelity retirement director Alan Higham says: “This decision reflects the reality of providers’ obligations. It shows very clearly that providers have an obligation to block transactions that are not in the client’s best interests.

“If any Sipp providers are towards the more relaxed end of the spectrum this decision will make them think twice.”

The FCA has issued several warnings on Sipp operators’ due diligence obligations to protect consumers, culminating in a ‘dear CEO’ letter last July.

And in September the FOS confirmed it was reviewing a complaint previously upheld against Berkeley Burke Sipp Administration for inadequate due diligence on an unregulated collective investment scheme. The FOS says it is still yet to make a final decision on the case.

Suffolk Life head of marketing and proposition Greg Kingston says: “The responsibility of Sipp providers towards investors, advised or otherwise, feels like it is growing by the month.

“From seemingly small regulatory changes and FOS decisions, the area between what they should and shouldn’t be responsible for is becoming distinctly grey.”

James Hay head of technical support and chairman of Amps Neil MacGillivray says: “Sipp providers are taking a very cautious approach and that is the world we now live in – where providers will not look at cases if there is any perceived risk of the liability falling back on them.”

He says the FOS’s stance on Cambridge May is “reassuring” for Sipp providers but could be bad news for consumers who want to transfer out of DB schemes.

Any saver who wants to ditch their DB scheme for a DC plan to take advantage of the new pension freedoms must take advice before transferring.

MacGillivray says all Amps members have said they will not accept transfer requests from “insistent clients”, where clients decide to proceed despite a negative recommendation from an adviser.

But operators are divided on whether they would intervene where there has been a positive recommendation.

Kingston says Suffolk Life rejects business “from time to time”.

He says: “This can be for reasons of suitability, such as if the total fund value being transferred doesn’t feel a good fit for the target market of the recommended product, or because we will not allow the recommended investment.”

But he says that questioning if the product is the right fit and questioning if the advice is right are “completely different”.

Kingston says: “Providers’ products should be designed for a clear target market, defined by factors such as age, income and size of pension fund. When that information doesn’t look like it fits they can refuse the business or ask the adviser for some more information. But that information is a tiny percentage of what advisers know about their client.”

Higham says Fidelity checks the adviser is regulated and appropriately qualified to do pension transfers, but also “casts an eye over the advice”.

“The Sipp provider has a duty of care to the client,” he says. “I’m not saying we would try to second guess the advice, but we would make sure it was all in order.”

Dangerous road

However, others argue it is inappropriate for providers to interfere in the advice process.

Talbot and Muir head of technical support Claire Trott says: “Providers are not financial advisers and do not have the full picture of the client’s personal and financial circumstances.

“As long as advisers are suitably qualified and regulated, then we as providers need to trust them to do right by their client.”

Yorsipp head of business development Mark Canning says: “This is a dangerous road for providers to go down.

“While they have a duty of care to the member, they are not advisers and to intervene when the adviser has said they are happy with a transfer creates a difficult relationship between the two.”

Law firm DWF partner Harriet Quiney says: “FOS seems to be going down a route of saying Sipp providers should look for evidence that a transaction is in the client’s best interests. There are a number of cases where the advice firm has gone bust and it may be that clients are looking for someone else to blame.

“If something looks very peculiar then Sipp firms do have a duty to ask some questions, but it cannot be right for them to investigate every DB transfer. That would mean someone without the right qualifications advising on a case without the full facts – how can the regulator be happy with that?”

Providers also argue they should not be held responsible for regulatory issues that come to light at a later date.

MacGillivray says: “If the business has come from a regulated adviser, it is the responsibility of the FCA to monitor the advice they give.”

Yellowtail Financial Planning managing director Dennis Hall says advisers must respect that every firm has a right to turn down business.

He says: “If a provider rejects a recommendation, that might annoy or upset us as advisers because we feel our judgment is being questioned. Particularly because the provider is unlikely to know everything about the client, such as any health issues.

“However, any business is entitled to decide whether or not to take certain business on. Providers should have a very clear mandate about what they will and will not accept and should make that clear from the outset.”

And some argue that providers could be doing advice firms a favour by taking a cautious approach.

Personal Finance Society chief executive Keith Richards says: “This case highlights the risks associated with suitable recommendations, let alone facilitation of unsuitable ones.

“The FCA guidance about always acting in the client’s best interest is clear and
the ombudsman clearly supports the action the Sipp operator took.

“On face value the adviser should be grateful to the Sipp operator for intervening as it has mitigated the risk of an unsuitable transfer and a future complaint against the adviser.”

Should Sipp providers overrule adviser transfer recommendations?

Claire Trott Talbot & MuirClaire Trott, head of technical support, Talbot and Muir

I have heard of providers asking to see suitability reports and TVAS before and feel that this is overstepping the mark. Providers are not financial advisers and do not have the full picture of the client’s personal and financial circumstances so it would be incredibly difficult for them to make an informed decision.

We would not ask to see the suitability letter or TVAS, as that is the client and adviser’s correspondence and not ours to interfere with or comment on. There is likely to be personal information in the report that in the normal process of setting up a pension the provider would not need to see.

Advisers are advisers for a reason and provided they are suitably qualified, trusted and regulated then we as providers should be able to believe they are doing the right thing for their client without the need to investigate further. Having a relationship with the introducer will help in this kind of case because you will know who they are, generally know their business and business model.

In this ruling, however, it was the delay that was seen to be the issue and the fact it impacted on another transfer. Delays by receiving and ceding schemes can have a significant impact on clients and their benefits. In this example the transfer value may have expired while the client found another provider.

I feel that as a provider you do have the right to refuse a transfer. We would refuse a transfer if there was not a positive recommendation from a regulated financial adviser, and we do not accept execution only or insistent client transfers at all. We also check at the outset that the adviser firm has the relevant permissions to conduct pension transfer business.

I do not, however, feel that the provider could state with any certainty that a positively recommended transfer was not in the client’s best interests. There may be other reasons that they choose not to accept the business but this should be made clear up front so as not to inconvenience or penalise the client.

Neil MacGillivray, chairman of Amps and head of technical support at James Hay

Sipp providers are taking a very cautious approach and that is the world we now live in – where providers will not look at cases if there is any perceived risk of the liability falling back on them.

There is no joined up thinking between the FOS and the FCA. The FCA spoke at our Amps conference this week and said quite clearly that it was not up to the Sipp provider to challenge or question the advice, only to check that advice had been given.

But there is a growing trend for Sipp providers to be held accountable and there can be no certainty over ombudsman decisions. The FOS and the Pensions Ombudsman can look at almost identical cases and come up with completely different views.

Sipp providers have to make a commercial decision on whether or not they are comfortable with transactions, and with the regulatory environment we are in, more and more firms are looking to be overly cautious.

Following the pension freedoms there is a real issue over whether firms should accept business without a recommendation. At James Hay we will not accept insistent clients and neither will any Amps members.

Rejecting business that comes with a positive recommendation remains a decision for each individual provider.

In the vast majority of cases, moving from a DB to DC scheme will not be the right thing to do, so we are likely to see more Sipp providers taking a cautious approach.

However, that restricts client choice and we have raised concerns with the FCA that it could create more opportunities for scammers.

This is a reassuring FOS judgment for the Sipp industry, but could be bad news for those who wish to transfer out of DB schemes and for whom it is appropriate to do so.

Adviser views

Chris Daems, director, Cervello Financial Planning

This case highlights how both advisers and pension firms are taking different approaches. Whilst it could be validly argued that only the adviser knows the full facts of the case, I completely understand from a risk perspective why the Sipp provider would decide to say no.

Nick Flynn, longevity director, LEBC

It is odd for a Sipp provider to question a positive recommendation and is not something we have experienced. It could be damaging for a provider’s relationship with an adviser. But it would be more understandable for the Sipp provider to take that approach if the request came from an adviser they had never done business with before.


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. How can SIPP providers who are not registered advisers make a decision on advice?

    This is the lunatic world we operate in.

  2. John Hutton-Attenborough 21st May 2015 at 9:35 am

    Can you investigate this further and establish whether the transfer did ever complete and if not whether the client is now thanking his lucky stars?

  3. Tail wagging the dog ?

  4. Perhaps the experts at PensionWise could intervene as well?

  5. Am I missing something here? The way I read this is that the FOS merely said that the firm took too long over its refusal to accept the business and awarded £200 compensation. Why the outrage?

  6. At what point does the customer’s right to spend his/her own money as they chose come into this?.

  7. I think the point here is about the dilemma.

    In theory, checking the existence of a recommendation from someone authorised to make it should be enough.
    But in practice, for a minority of cases, that’s not enough to protect both customer and SIPP provider from severe penalties if the advice is bad. (Which seems likely if the article correctly identifies the then authorised adviser as now being in default, with directors banned by the FCA and even worse, “More than half of the firm’s customers invested in overseas property operated by the Harlequin group of companies, which is under investigation by the Serious Fraud Office.”)

    So the question is what are the reasonable steps SIPP providers can be expected to take to spot the potentially wrong cases without undue interference with the majority?

  8. If people wish to transfer their final salary to a DC scheme then they should be allowed to.

  9. Nicholas White 21st May 2015 at 11:27 am

    Claire’s and Neil’s views both seem utterly reasonable and hardly opposed to each other, not sure why their contributions are labelled “No” and “Yes” ?

    On the main issue, why can’t FOS be more like the Pensions Ombudsman, which strikes a sensible compromise between legal perfectionism and accessibility ? And if it can’t, why not expand the role of the Pensions Ombudsman to cover all such cases ? Better still, take away from FCA the supervision of the “operation” of personal pension schemes altogether. It has achieved little, at huge cost – cost which ultimately is either passed on to the customer or squeezes providers out of the market, reducing diversity and choice.

    I am in favour of strong regulation of SIPPs, but it has to be effective and appropriate regulation. If the resources used by FCA over the last 8 years had been granted instead to HMRC and SFO, more pension scammers would be brought to justice and less innocent and vulnerable savers would have lost their life savings.

    The “operation” of a true SIPP is, or at least should be, all about the competent administration of a tax wrapper. The promoters of dodgy exotic investments sprinkle the glitter of tax relief over their wares to make them seem attractive. It is HMRC, and thus taxpayers as a whole, that loses out whenever someone “liberates” their pension pot and gets away with it.

    Sometimes I wonder if focusing regulatory effort on the “operation” of SIPPs as a financial product since 2007 has been a bit like rearranging the deckchairs on the Titanic (though with the help of a lot more consultants and lawyers with expertise in deckchair rearranging). What really matters is the integrity of the tax regime, the hull on which the whole thing floats. And the iceberg slowly tearing through each hull compartment ? The squeeze on the funding of HMRC’s compliance and anti-fraud functions which drove “simplification” and led to HMRC effectively abandoning regulation of SSAS and SIPPs and saying “Do what you want and we’ll just tax you accordingly – if we find out, that is.”

  10. Interesting. Cambridge May’s former name was…?

    Claire Trott’s comment that “provided they [advisers] are suitably trusted” must surely apply to their reputation with the provider as much as with the end-user. For example, if you saw something like the below (which I’ve just now pulled from the register) attached to an adviser firm’s permission, might you be more cautious in accepting a positive recommendation?

    “The Firm must not:
    (1) Carry on any regulated activities in relation to pension switches and/or pension transfers to any self-invested personal pension scheme, including completing pipeline business … except where the member’s funds are to be invested wholly in standard investments …; or
    (2) Hold itself out as providing independent advice in relation to personal pension schemes (such advice to be instead described as restricted advice).”

  11. Julian Stevens 27th May 2015 at 10:43 am

    Are SIPP operators responsible for advice given on what monies are transferred into them or what type of investments are used? If they are, then they have to analyse the suitability or otherwise of virtually every single proposed transaction and quite possibly reject quite a few. That will increase their costs immensely and probably sour their relationship with many advisers who, from that point on, will no longer use them. If they’re not, then liability rests with the party that advised the transaction or investment. The present situation seems to place SIPP operators between a rock and a hard place ~ damned if they do, damned if they don’t. Now where have we heard that before?

  12. What a mess.

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