SIPP pen­sion wran­gle could prove costly

Birmingham Post - - PERSONAL FINANCE -

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: tlaw@east­

The views ex­pressed in this ar­ti­cle should not be con­strued as fi­nan­cial ad­vice

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