The outcome of two court cases involving the mis-selling of Self Invested Personal Pensions (SIPPs) are expected to have wide implications for the pensions industry later this month.
The potential size of SIPP mis-selling in the UK has been the subject of speculation at the highest level for some time with MP Frank Field calling for an investigation by the Financial Conduct Authority (FCA) into the way SIPPS have been sold.
Dodgy and inappropriate investments
Mr Field, chairman of the House Of Commons Work & Pensions Select Committee, said: “I am concerned about the role of SIPPs as platforms that help funnel unwitting clients’ pension savings into dodgy and inappropriate investments.
“SIPPs are happy to skim off their fee on the way, but there are serious questions about their commitment to due diligence and consumer protection.
“When an unscrupulous financial advisor channels a victim’s money through a SIPP into an investment that then collapses, it is not enough for the SIPP provider to shrug their shoulders and say ‘caveat emptor’ – let the buyer beware.”
The number of complaints about SIPPs to the Financial Ombudsman Service (FOS) has almost doubled in a single year.
It is understood that the FCA has submitted evidence in both of the court cases regarding how SIPP providers breached conduct rules by accepting ‘esoteric investments’ without due diligence.
Both cases are based on the advice given by the firms for their clients to invest in unregulated products which later lost money.
The first is a judicial review which is about to start into a disputed issue from 2014 between the Financial Ombudsman Service (FOS) and Berkeley Burke Sipp Administration (BBSA).
FOS alleged the firm had failed to carry out due diligence on a £29,000 unregulated collective investment scheme. BBSA challenged the decision so FOS re-examined the case and upheld their previous decision. The firm again resorted to legal action and in 2017 the High Court decided in FOS’s favour.
Now the firm has obtained a judicial review of the issue on the grounds that if the FOS decision is upheld then not only will SIPP providers be under obligation to screen all non-standard investments, but clients will be prevented from investing in the way they desire.
The extra work involved in arranging a SIPP under these circumstances would mean the fees for doing so would increase considerably and some providers may not be able to cover the increase.
Financial journalist Michael Klimes said: “SIPP providers that are exposed to unregulated investments which have failed should follow what happens in the trial closely, as a ruling against Berkeley Burke could be a watershed moment for the industry.”
Mis-sold SIPP claims
The second case revolves around a High Court hearing in March at which Judge Marc Dight said the outcome of the case could shape the handling of mis-sold SIPP claims because of the involvement of the FCA.
A lorry driver claimed he had been mis-sold a SIPP by Carey Pensions and his legal representatives said the FCA should be allowed to give evidence because it raised questions about how SIPP providers comply with conduct of business rules.
Courts to decide on SIPP mis-selling – Read more here:
But the firm’s legal representatives claimed it should not be allowed to get involved because ‘the FCA has an agenda’ in the trial and ‘it cannot be in the interests of justice’ for Carey Pensions to be singled out.
Judge Dight allowed the FCA involvement and a final ruling on the case is expected within the next few weeks.