SIPPs – another black mark or caveat emptor?
Who does the finger of blame point to when a ‘SIPP-permissable’ investment goes wrong? Mike Morrison, head of Platform Technical, AJ Bell takes a look at the regulatory and legal arguments
The other day I caught a discussion on a Radio 4 consumer programme and heard the word ‘SIPP’ mentioned. As you might expect this made me stop for a minute to see what it was all about.
The story was around the closing down of a company that sold storage pods; apparently there is a large amount of SIPP money invested in such assets which is at risk. One unfortunate example was of a man who had transferred his entire Post Office pension (from memory this was circa £141,000) into a SIPP, which was invested in storage pods and unlikely to be recoverable.
I know that such investments have been marketed as ‘SIPP permissible’ but I also know that eyebrows are often raised when this phrase is mentioned. As long ago as September 2014 there were articles in the trade press concerned with the marketing of such investments, including allegations of fraud.
Let’s take a look at the regulatory and legal arguments.
In 2011 the FSA spoke about “poor firm conduct and the potential for significant consumer detriment… We also found inadequate controls over the investments held within some SIPPs.
“In 2014 we had data showing that almost three quarters of FOS complaints were about “advice” to invest into unregulated and unsuitable investments and the FSA confirmed that it had told several SIPPs to stop supporting non-mainstream investments.”
In April 2014 the FCA issued an alert “…some firms continue to operate a model where they purportedly restrict their advice to the merits of the SIPP wrapper. We think advising on the suitability of a pension transfer or switch cannot be reasonably done without considering both the customer’s existing pension arrangement and the underlying investments intended to be held within the SIPP”
Legal developments have been equally confusing.
In 2014 an FOS decision went against one SIPP operator, ruling that the trustee of the SIPP had a duty to ensure that the investment was suitable even if there was no authorised adviser and even if it was introduced by a non-regulated introducer. This was referred to as a ‘game changer’ by one firm of lawyers. However, the judgement was taken from the FOS website for review and has not been seen since.
Then, in April 2015 a decision from the Pension Ombudsmen took a different view. In a case that appears to have a similar set of facts it ruled that the same SIPP operator had complied with their obligations, had given the investor clear warnings and, when he opened the SIPP in 2011, had sent him a letter stating they would not be held responsible for any losses or liabilities that might arise from his investment decisions and that there was no implied suitability as to the investor’s financial objectives/risk profile – which the SIPP operator would not know. The investor had signed this.
In this case, the complaint was that the SIPP operator failed to carry out due diligence into his investments. I am not sure that a SIPP operator’s due diligence process would cover the potential performance of the investment but just the fact that it can lawfully be held and administered. So which Ombudsman is right and which one should actually deal with such complaints?
It was also reported at the time that a law firm had written to the FCA arguing that SIPP providers should be held fully accountable where an investor has either had no advice or has had contact with an unregulated ‘introducer’, who has pushed them towards investing in unregulated products.
For me, the advice relationship is key. If there is no advice then caveat emptor applies and responsibility for the investment falls on the pension holder. If there is regulated advice then, as per the FCA, the adviser has responsibility for the choice of investment.
The difficulty comes if there is a grey area – perhaps the involvement of an unregulated adviser – and the question arises as to whether there is any pre-existing relationship or connection between the introducer and the SIPP operator.
The due diligence by the SIPP operator should look at whether the proposed investment can be administered and whether there are issues from a tax perspective, however, without advice I am not sure it should cover suitability (the awareness of the SIPP operator of ongoing ‘fraud’ or maladministration could change this).
As more emerges we will be able to build up more of a solid picture but, once again, this is a negative image for SIPPs and I am sorry to say I am sure it will not be the last one!