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Sipp firms put bio-fuel responsibility on IFAs

Sipp providers with clients exposed to a failed bio-fuel investment project have defended their due-diligence processes and say responsibility for investment suitability lies with the adviser.

Last week, Money Marketing revealed a total of 1,500 people, mostly Sipp investors, are facing losses of up to £32m after Sustainable Agroenergy, Sustainable Wealth Investments and Sustainable Growth Group entered administration on March 15.

Hornbuckle Mitchell has confirmed 120 clients are exposed to the scheme, Rowanmoor Pensions has 50 clients exposed and Curtis Banks has 12. Berkeley Burke is understood to have clients exposed but could not be reached for comment.

Hornbuckle Mitchell head of sales Stewart Dick says: “We have written to clients and are liaising with the administrators to ensure maximum recovery. Our role is to look at HMRC issues and make sure the investment is compliant. Investment suitability has to come from the adviser.”

Rowanmoor Pensions head of pensions technical services Robert Graves says: “We think it is our role to make sure any investments through our Sipp are bona fide and compliant with HMRC rules. We have a thorough due-diligence process but ultimately it is up to the IFA to determine if it is suitable for their client.”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “Providers need to address due diligence because an increasing number of customers are suffering detriment due to failed Sipp investments.”

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. Surely the SIPP providers are right on this one it must be the advisers fault for selecting an inappropriate fund…a bit like a DIY store offering knives for sale, they cannot govern how the knife is used and may end up being a murder/assualt weapon. However there is surely some thought that needs to be given to the wisdom and corporate governance making the fund available. A DIY store presumably has knives under lock and key… but then I’m sure there are loads of exceptions and of course anyone wanting to commit crime can probably do so with a bic biro pen…. so I’m siding with the SIPP providers on this one.. until convinced otherise, the adviser is at fault – key issue is negligence or honest mistake?

  2. I agree except for one thing Dominic, you missed out greed.

  3. Using your DIY store analogy, what if the store sold a faulty product, heaven forbid someone was injured, would the store or the manufacturer of the product be responsible??

  4. David Trenner - Intelligent Pensions 4th April 2012 at 12:49 pm

    Dominic, I think you are missing the distinction between “provider”, “administrator” and “trustee”.

    Most SIPP providers are in fact trustees and as trustees they have a duty of care to the beneficiaries.

    Just as the trustees of a defined benefit pension scheme (remember those?!) have a duty of care to their members and therefore at the very least obtain an undertaking from the receiving scheme/policy, so the SIPP trustees must ensure that their members’ best interests are being considered.

  5. Davie Trenner

    This is an issue that has been raised before.

    A SIPP Trustee does have a duty to protect scheme members assets, that is true.

    But does the SIPP Trustee have a duty to challenge an IFA’s advice if it relates solely to investment risk?

    If a SIPP Trustee were to tell you that your advice was flawed what would you do?

    A SIPP Trustee / Administrator will ensure that the investment complies with HMRC legislation.

    Advice re investment risk is what IFA’s are there for.

  6. The clue is in the name ‘Self Invested’. I fail to see why SIPP providers have a duty to carry out due diligence on whether a fund is suitable or not.

    If they were responsible the only investment available would be cash!

  7. Exasperated Me 4th April 2012 at 1:22 pm

    Is the term ‘trustee’ a bit of a misnomer?

    What trustee worth his or her salt would allow these things to be held in under their SIPP umbrella?

  8. There are two “suitabilities” here if you will – firstly the straight forward one. Is the investment appropriate for the client? that rests squarely with the adviser,

    Secondly is the investment right for the pension provider. Different providers wil have different criteria on what type of investments are permitted. That is why you regularly here advisers bemoan larger SIPP providers such as James Hay or AJ Bell who won’t allow them to invest in a private limited company in Malta but Jimmy Krankie SIPP Company will.

  9. Like a football club`s board of director`s vote of confidence in their manager I would have thought that the inclusion of the word sustainable in any investement product would have given a clue to it`s future. Just like our Financial Sustainable Authority. Fat chance!

  10. Greg Kingston, Suffolk Life 4th April 2012 at 2:34 pm

    My view as an independent SIPP provider is that the provider has no responsibility over ensuring suitability of the investment for an individual – that’s clearly the role of the adviser. The provider has clear responsibilities to ensure that:

    a) the investment complies with the pension scheme rules; and

    b) the investment complies with relevant regulatory and HMRC requirements

    My opinion would change however if it were subsequently found that the SIPP provider played a role in the promotion or marketing of the investments or their availability. In those cases, and we seem to be seeing more of them, the independence of the provider would have been breached.

    I would have concerns if large numbers of these types of investments consistently ended up going to a small group of SIPP providers, and if those types of investments were driving a significant proportion of their new SIPP business.

  11. David
    “Most SIPP providers are in fact trustees and as trustees they have a duty of care to the beneficiaries” – true but they also have a trust deed and rules that passes all investment decisions to the member or their appointed adviser as otherwise there would be no self-investment.

    If an IFA has recommended this investment they have given the investment advice and there can be no question of a SIPP provider being required to second guess this.

  12. I don’t know why but I sense another FSCS interim levy coming along.

    Fund failure- IFA administration- FSCS levy, the usual story

  13. Catherine Christopher 4th April 2012 at 3:33 pm

    I work at a SIPP company and do due diligence on a lot of Alternative Investments. The amount of DD done has increased hugely over the last few years. I take into account whether the investment is “allowable” within a SIPP from a view of the tax rules. I also look at whether it is “suitable” BUT only in a limited way, for example if the asset is illiquid but the member wants to retire. We cannot take into account whether the investment is suitable for the client as we are not privvy to the overall investment planning advice given by the adviser, and nor should we be. ALL investments are risky if the advice given is incorrect based on the investors attitude AND capacity for risk. This is the advisers job not the SIPP provider/trustee/administrator’s job.

    Several times I have been told that is is none of my business when I have questioned the advice given, but am the first under fire when the SIPP loses out.

    Advisers, and their clients need to start taking some responsibility for their actions and not always blaming someone else when their actions cause them to lose out.

    Oh and just for information, I turned this investment down during my DD process, and lost out on the fees for the DD and the clients who wanted to set us SIPPs with us to do the investment. Not all SIPP companies are motivated purely by greed, some of us are more interested in protecting our SIPP members, there are good and bad SIPP providers, the same as there are good and bad advisers.

  14. David Trenner - Intelligent Pensions 4th April 2012 at 4:07 pm

    “I turned this investment down during my DD process, and lost out on the fees for the DD and the clients who wanted to set up SIPPs with us to do the investment.”

    Clearly you did a good job. I hope that your Marketing people are using this when you are in competition with providers who were happy to ignore their role as trustees and just took the money!

  15. “Clearly you did a good job.”

    Sure – with the benefit of hindsight. If only we were all blessed with that…

    But this investment met all the appropriate criteria for a SIPP investment – the promoters were legit, the title to the land was provided, the T&Cs met all HMRC and provider requirements.

    Some SIPP providers blanket ban all overseas investment because they don’t want the complications – and then act sanctimonious about their due diligence if one goes wrong. Is this doing the clients a service, or simply acting out their own corporate stances?

    Bottom line is, at the time this investment was being promoted, there was no way of knowing that the directors were going to defraud their investors. There never is.

    I’d be intrigued if anyone could advise what level of due diligence could detect future fraudulent intentions?!

  16. I’ve missed something. The SIPP provider says it’s the IFA’s advice that is core. Fine. The anonymous SIPP researcher explains the limited DD undertaken and the reasons. Fine. The anonymous SIPP researcher then says that this investment as turnd down.
    On what grounds?? We know the “appropriate criteria” were met and we know that second guessing adviser advice isn’t in their remit … so on what grounds WAS the investment rejected??
    And does it matter that other providers didn’t have the same problems??

  17. I don’t believe that this buck passing is particularly helpful. SIPP providers should work with IFAs to determine whether they believe a particular investment is appropriate for a SIPP. This is distinct from suitability of an investment for a client. Suitability remains the domain of the IFA and who as part of the advice process will understand a client’s appetite for and attitude to risk and will recommend the appropriate investment in regard to this.
    I said in an earlier post that a SIPP Provider’s due diligence can reasonably be seen as part of an IFA’s second line of defence. However SIPP Providers cannot reasonably rely solely on the HMRC line as a valid response for restricting their review of an investment. The SIPP Provider must justify why they are comfortable with owning or co-owning an asset and naturally that goes beyond HMRC guidelines. As a SIPP Provider with significant experience and resource in the area of due diligence we will sometimes decline an approach because we are not comfortable with holding it. However it takes time to acquire the knowledge to make that call and we won’t always get it right. But as I have said before, there are times that we decline an investment, due to legitimate concerns only to see it pop up somewhere else having been deemed acceptable for another provider. As Martin Bamford said in this paper today advisers need to be proactive to stop toxic products being sold.

  18. Water into wine 5th April 2012 at 5:48 pm

    Dear Anonymous 9.29
     
    If I may make a suggestion. 
     
    If you look at an investment is a relatively deprived region of the world which offers massive, seemingly guaranteed returns for a modest input, your due diligence should probably ‘detect future fraud intentions’.
     
    Surely you have to wonder why would someone sell you a ‘get rich quick’ investment be it this one or farming in sierra leone rather than keeping all of the profit for themselves?
     
    I reckon you would have welcomed in clients to a delightful little ‘land-banking’ arrangement with great prospects a few years back and still be full of wonderment and bemusement why the green-belt land hasn’t been sold for residential development.
     
    Presumably if you are a SIPP Provider now fielding or avoiding calls from annoyed clients, the words ‘prudent trustee’ are probably just an annoyance to you.

  19. i blame the ifa,s my financial advisor bent over backward to get me to transfer my pension to a sipp . i was a bit dubious at one stage but he won me over . obviously all he was interested in was his fat commision i think they have alot to answer for and should be hung out to dry

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