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Sipp struggles: Should advisers or providers be at fault for bad investments?

The regulator needs to provide clarity over who is responsible for Sipp investment failures, experts have said.

The line between adviser and Sipp provider responsibility is “blurry” and the FCA needs to be more “robust”, industry insiders have said.

The call to action comes ahead of a ban on cold-callers who get people to invest their pensions in unregulated schemes. Figures from the Government this month showed that almost 3,000 savers have been conned out of an average of £15,000 each in the past three years.

But Dentons director of technical services Martin Tilley thinks the situation is improving and many Sipp providers are now shunning so-called toxic assets.

He says: “There a shift occurring. A few years ago, the Ombudsman tended to absolve Sipp providers in cases where toxic assets had gone wrong. Now they are having to do more due diligence not just on the investments but the source from which they are coming, and do more to ensure they are treating customers fairly.”

While the watchdog is cracking down on unregulated investments, there are still question marks over where the responsibility lies when an investment goes wrong.

Purle Consulting regulatory consultant Jonathan Purle says: “In Gibraltar, for example, the regulator is adamant that it is the job of the Sipp provider to do due diligence on an investment to see if it is suitable for retail investors. I think the UK could benefit from the same sort of clarity.”

Counting the £260m cost of Sipp misselling

A major issue is that Sipp providers frequently have little information about the investor, so are not able to offer guidance on whether a particular investment is appropriate or not. Particularly when the business comes through an adviser, there is an assumption that the IFA will have done the due diligence on investment suitability, and the Sipp simply needs to confirm that it is eligible for the wrapper.

Yellowtail Financial Planning director Dennis Hall thinks the onus is on advisers: “The person providing the advice has the bulk of the responsibility. Sipp providers have their list of assets which they’re comfortable accepting but other than that they are just the administrator, which is right because if they’re not being paid for advice it’s unfair to expect them to provide it.”

Adviser view

Claire Walsh Walsh-Claire-Aspect8-2014-700x450.jpg


Chartered financial planner 

While Sipps are really just a tax wrapper and generally whatever is within them is under the direction of the adviser, the responsibility does fall to both parties. Sipp providers have a duty to consider whether an investment should be flagged for potential mis-selling.

The burden of responsibility is a grey area which has been thrown into the spotlight in recent years after some high profile mis-selling cases which appear to have left even the regulators confused on the matter. In 2015, the Financial Ombudsman Service ruled Sipp provider Berkeley Burke as responsible for investors’ losses from unregulated investment schemes, contradicting the Pension Ombudsman’s conclusion.

More recently, the FOS is still investigating complaints made against Carey Pensions concerning whether the firm carried out appropriate due diligence on an unregulated introducer.

Working towards a white list?

Some industry experts have suggested that the regulator should construct an explicit list of allowable and non-allowable assets for Sipps, just as there are for Isas, to help tackle the issue. Tilley disagrees though.

He says: “I think the people trying to sell these assets will just wrap them up into an asset that is eligible and then you will have a problem with them marketing products as Sipp-acceptable, as though it is an endorsement of the investment.”

But he thinks the industry is starting to clean itself up. Already providers such as James Hay have said they will no longer accept non-standard assets on to their books, and most providers have a list of investments they do and do not accept. The increased focus on the industry has meant many providers are taking steps to make their processes more robust rather than risk the regulator’s wrath in the future.

Hall thinks this approach could be over-cautious. He says: “It seems like some firms are looking to cover their backs by doing more than required, in case there are problems years down the line. If any of my clients were questioned by a Sipp provider as to their investments I would suggest it wasn’t allocating its resources very well.”

However, Tilley argues that providers need to protect themselves against future regulation: “We have never had a stronger process than we do now and we’re continually refining it so that we’re only accepting assets we want to hold. We don’t want to take on anything that could cause problems in the future, because we will have to suffer the burden if we do.”

Yet there are still risks with taking a cautious approach. Purle says those which take a more conservative line on the investments they accept could stand to lose out.

He explains: “An adviser or an introducer can always take their business elsewhere if a provider won’t take it. Because there isn’t a great deal of clarity from the regulator, those providers trying to be robust could lose business.”

The way forward

But taking a tough stance line today does not erase the mistakes of the past; the industry is still suffering a hangover from legacy business, which means there could be more complaints to come. Many of the major problems arose around the time of pensions simplification and in the handover of regulation of the industry from HM Revenue & Customs to what was then the Financial Services Authority.

The use of unregulated introducers is one particularly murky area that has emerged recently and could play out further down the line. The FCA has warned that Sipp providers may have to cover the costs of client claims if they can’t prove they did sufficient due diligence on the source of the investment.

Purle says: “The real question is whether the Sipp provider should have accepted the business in the first place. The law says that authorised firms shouldn’t be concluding a contract with an unauthorised intermediary.”

He adds: “There are vagaries as to exactly a Sipp provider’s responsibilities are. Any authorised firm has to act professionally and in its client’s best interests but where does it say that a Sipp provider should be responsible for double-checking the suitability of an investment? It’s ambiguous and that’s quite unfair.”


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There are 15 comments at the moment, we would love to hear your opinion too.

  1. “Sipp providers frequently have little information about the investor, so are not able to offer guidance on whether a particular investment is appropriate or not.”

    But SIPP providers do (or should) have information about the investment, and should be able to form a view as to whether – to take a purely hypothetical example – they’re overpaying for a storage unit, and what the secondary resale market for that storage unit might be when the member seeks to decumulate down the line.

    “Any authorised firm has to act professionally and in its client’s best interests” and, if the operators had carried out this sort of basic thinking about the investments, I think they would (or should) have realised what sort of issues they were storing up for later.

  2. Also these products are Self Invested, as it says on the tin.

    Surely the investor has some responsibiliy as well.

  3. Oddly enough there is no apparent thought as to whether the client should bear any responsibility for the decisions that they make?

    I find it odd, that these days clients appear to have been absolved of virtually all responsibility for their own actions.

    It almost seems to have gotten to the stage where an analogy would be a punter in a betting shop not being responsible for their own losses if the horse falls, or something goes wrong.

  4. With regard to SIPP providers taking a cautious approach and losing out on business,I think we’d all rather have a little less, but quality business than hold something that is a potential liability in waiting.

  5. Why should a SIPP provider be responsible for suitability on an investment recommended by an adviser. Where else in the industry does this happen? Does Standard Life question the suitability of a client investing in an onshore bond for example?
    They should and do however conduct due diligence on whether the investment is legitimate.

  6. The Responsibility lies with the Regulated Adviser, not the Admin of the SIPP Provider, unless the SIPP provider can not provide evidence of who organised the end investment instruction form, clearly then its the Providers responsibility to authenticate the Investment instruction documentation, just ask London & Colonial regarding who instructed the holiday home in Brazil via Shares in Portugal !! So it could be both or either, However its a simple remedy, Regulated Products incorporating Regulated Investment get FCA & FOS & FSCS protection, anything else is excluded.

  7. SIPP providers should have 100% responsibility for the investments, the IFA could only recommend products that the SIPP provider would accept and many were lead by greed. The Harlequin judgement shows little to no due diligence was or possibly could have been carried out by the SIPP operators and they have a duty under the principles of business to the client. They are also trying to hide behind execution only and introducers which they will lose long term. The sad think is the IFA community are getting hit and section 166’s being handed out on a regular basis but when is the FCA going to do the same with the SIPP providers who built up a business based on toxic waste and now charge clients extortionate fees for their service?.

  8. I was on the panel at a SIPP conference in London 5 years ago or more and said then that providers needed to regulate what investments they would allow clients to buy, or else risk a disaster down the line.

  9. The problem is the unauthorised advisers and unregulated schemes/scams. Some have had a habit of making out that they are some kind of investment gurus and then liquidating or worse, Phoenixing which the FSCS hasn’t seemed to have policed too well historically.

  10. Charles Seymour-Cole 23rd August 2017 at 12:23 pm

    The clue is in the name. SELF INVESTED Personal Pension. If the client wants to invest in something esoteric why shouldn’t they. If they use an adviser he/she can give all relevant information and warnings. If they don’t use an adviser, the Provider can tell them whether it is a regulated investment or not. If not, as Robert Milligan pointed out, no access to FSA, FOS or FSCS. Its time the clients had some skin in the game as well.

  11. At the risk of being hugely controversial, personally I think that SIPP providers who try to deploy the “we don’t advise, we only hold” defence may not have read SYSC 6.3 in the FCA rulebook.

    When you get a lot of customers from the same unregulated source investing in the same unregulated product, surely you start wondering what’s going on?

  12. How can the FCA be “more robust” when, because of its useless GABRIEL system, it has no idea about which and to what extent regulated advisers are recommending, arranging and/or are involved in the process of facilitating non-standard investments?

    • Still with this??

      It would be like akin to someone reporting to the police how many people they stabbed each day.

      It wouldn’t happen!!

      You cant mitigate an issue rooted in poor culture and greed with MI!

      • What you appear to be saying (and I agree) is that the FCA’s GABRIEL system is of EVEN LESS use than it’s already widely considered to be because there’s no system to police the accuracy/truthfulness of the data submitted. Provided the various totals cross-tally, it’s job done as far as the FCA is concerned. So people (commonly) just manipulate the data they enter, the prime objective, above all else, being to get the system to accept it.

        Anecdotally, no one at the FCA even examines the data submitted, at least not those areas of it which could highlight potentially dangerous activities. In fact (so I’m told), the system doesn’t even ask for data on sales of stuff like UCIS. On the other hand, as somebody posted elsewhere, it does ask: How many complaints about pet insurance has your firm received over the past reporting period? How farcical is that?

        If I thought the GABRIEL system would enable the FCA to identify, home in on and, where appropriate, take swift and effective action against firms engaged in flogging stuff highly likely to cause consumer detriment, particularly without relevant PII, I would support it all the way. But that just isn’t the case, is it? It’s largely just a waste of time and money imposed on those who have to complete the wretched things every 6 or 12 months.

        And finally (for now), on the issue of wantonly false or omitted declarations, the FCA should bare its teeth and mandate the severest penalties for such transgressions. Given the current and steadily worsening crisis with the levels of our FSCS levies, permanent expulsion from the industry for transgressors would (IMHO) not be too harsh.

  13. If SIPP providers are held responsible, and they should be, then some well known names in the industry will be very worried. Whatever they have had to provide in CA terms won’t scratch the surface of their liabilities.

    I know one large Wrap whose SIPP was favoured by Cherish Wealth because it allowed them to put all their toxic ‘investments’ on the panel to place clients pensions and investments into.

    Somebody one said to me when we were discussing a scam victim, ‘follow the trail to who has PI cover and the buck stops there, often that’s the SIPP provider’.

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