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Sipp firms boosted by Ombudsman due diligence ruling

Anybody that needs to complain in the UK about a financial institution or service, must ultimately do so to the Financial Ombudsman. The Ombudsman will then arbitrate on the matter. The can adjudicate on any matter relating to banking, insurance, mortgages, credit cards and store cards, loans, credit, pensions, savings, investments, hire purchase, pawnbroking, money transfer, financial advice, stocks, shares, unit trusts and bonds. Basically, if there’s an issue related to any financial matter in the UK, the Ombudsman is empowered to arbitrate if the matter cannot be resolved between the two parties. Here the bank note imagery of a sterling bank note carries the message, with the Gavel symbolising the adjudication.

Sipp providers say the Pensions Ombudsman’s decision to throw out a complaint made by a member who lost a £40,000 investment will reassure the market.

Alexander Toward said Sipp firm Yorsipp failed to carry out proper due diligence on a 2011 investment, an unsecured loan to an unregulated firm called PFS.

The investment was to be used to fund commercial litigation, a controversial investment not accepted by many Sipp firms. The loan agreement stated interest was payable by PFS at 9 per cent a year paid quarterly.

Toward was a client of adviser Stewart Asset Management Limited, which began being wound up in 2013 and is now in liquidation.

Brian Stewart and Jacqueline Fowler were directors of SAML as well as PFS, but Toward says he did not know this when he made the investment.

In the application form he signed when making the PFS investment, Toward declared he had the financial ability to bear the risk of the investment and he was an experienced professional investor.

But Toward says he does not consider himself a professional but an “inexperienced, low risk” investor and relied on SAML as “experts”.

According to PFS’s liquidator report to January 2015 the firm had loaned £6.8m to three different parties “in order to fund certain litigious actions”.

The Ombudsman ruled Yorsipp undertook adequate checks on the investment under the requirements at the time. In addition, it was reasonable for Yorsipp to assume Toward had done his own due diligence after declaring he was a professional investor.

Ombudsman Anthony Arter says: “The evidence, therefore, falls short of establishing that injustice was caused to Mr Toward as a result of any failure on the part of Yorsipp to exercise due care and diligence in the conduct of business with him.”

Suffolk Life head of communications and insight Greg Kingston says: “Sipp operators increasingly feel they are at risk of being subject to claims for investment loss when all other avenues have proved unsuccessful and been exhausted. This ruling correctly offers reassurance that this is not the case.”

The Ombudsman says Sipp providers’ responsibility is limited to “guidance, help and support” when making investment decisions, while appropriateness and suitability are the responsibility of advisers.

But Dentons Pensions Management director of technical services Martin Tilley says the regulator’s changing stance has meant providers have taken on more responsibility.

He says: “At the time these investments were made, the requirement on a provider was to determine whether it was in the interest of the member because the asset may result in taxable charges.

“But investments beyond the date of the 2012 thematic review I don’t think would get a similar response because the regulator gradually chipped away and put more and more onus on the Sipp providers to make sure the business they were writing was in the best interests of their customers.”

The Ombudsman disregarded Toward’s claim that he did not read the application form for the investment because he trusted the advice he was given by SAML.

Tilley says it is “absolutely critical” both the Pension Ombudsman and Financial Ombudsman Service recognise individuals’ responsibility.

He says: “Individuals should be able to take responsibility for their pension savings. That means if you’ve gone through an advice process, given appropriate documentation and signed it, the person who issued it should be able to rely on the fact that if you’ve signed it then you have read and understood it.”

Adviser view

Paul Holiday, director, GreenSky Wealth

It’s good that cases like these are being highlighted. It depends how you act as a firm. If you have confidence and the knowledge to back your investment decisions and knowledge of the underlying investment and who the counterparties are then their should be no worries about what you get your clients to sign.

But if you don’t understand those underlying things you obviously have an issue and things will come back to bite you.



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There is one comment at the moment, we would love to hear your opinion too.

  1. The thematic review and guidance make it clear that SIPP providers do need to be careful about so called non-mainstream products. There may have been leniency in the past but understanding the asset universe and its risks should be at the forefront of any SIPP provider’s risk management going forward. No more mongolian trouser funds please.

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