SIPP pension wrangle could prove costly
offices, shops or factory premises and individual stocks and shares quoted on a recognised UK or overseas stock exchange.
The problems most often arise when ‘inappropriate’ investments are used.
There is a case rolling through the legal process that could, it has been suggested, open the door to more than 1,000 claims, with the wider implication that fees for arranging a SIPP might soar.
In 2014, the Financial Ombudsman Service (FOS) ruled against Berkeley Burke for failing to carry out adequate due diligence on a £29,000 unregulated collective investment scheme. Berkeley Burke instigated legal action. In February 2017, the FOS upheld the original ruling but Berkeley Burke took issue again.
Last October, the High Court struck down the challenge. However, Berkeley Burke is now taking the matter to a judicial review, scheduled for this October.
Money Marketing magazine, on the basis of viewing the court documents, says Berkeley Burke argues that a number of questions of law arise. Firstly, in circumstances where, on an execution-only basis, a client instructs that a named unregulated investment be included in his SIPP, is the SIPP provider under any duty to investigate whether the investment is viable? Secondly, should a SIPP provider refuse to take on an investment if it thinks the investment is questionable?
The Financial Conduct Authority, which has joined the case as an interested party, maintains SIPP providers should carry out due diligence.
I have been assisting a client for some years whose adviser set up a SIPP with a major insurance company to receive a pension transfer. Unfortunately the adviser recommended a series of esoteric offshore investment funds that carried far too much risk for the client’s circumstances. The investments went wrong and all of the money was lost.
We instigated a complaints process but the adviser who set up the SIPP had ceased trading so the claim has fallen to the Financial Services Compensation Scheme to settle.
Did the insurance company carry any responsibility or duty of care? They had no knowledge of the client’s circumstances or attitude to risk so how could they determine the appropriateness or otherwise of this investment? He could have been a very wealthy man with an enormous appetite for risk.
If the regulators expect SIPP providers to effectively vet investments held, how can they do this without being part of the advice process? If they take a blanket view of certain types of investment, this potentially undermines the relationship between client and adviser, leading to a safety first approach.
As with all investments, establishing a suitable level of risk is of paramount importance but this can only be correctly established with full knowledge of the individual’s assets and a detailed appraisal of their attitude to and willingness to take risk.
If SIPP providers are to be expected to act as a safety net to screen out bad investments, where is the line drawn?
Trevor Law is managing director of Eastcote Wealth
Management, chartered financial planners, based in
Solihull. Email: firstname.lastname@example.org
The views expressed in this article should not be construed as financial advice