Sipp providers face a growing number of claims over pension investments made through unregulated introducer firms.
The issue of whether Sipp providers are liable for claims brought to the FOS has been around for a number of years.
In 2014 the FOS upheld a complaint against Sipp firm Berkeley Burke over due diligence on Sustainable AgroEnergy investments – the Sipp firm then challenged the claim and this challenge is ongoing according to financial statements released in June.
While this legal challenge remains unresolved, claims against Sipp providers about due diligence on investments that have not performed as well as expected have been put on hold. This has contributed to increased Financial Services Compensation Scheme (FSCS) bills for advisers as they are left with the liabilities for these investments.
However recent reports have shown that some Sipp firms may face compensation bills if they accepted business from unregulated introducer firms.
In financial statements published in April, Sipp provider Carey Pensions attributed a loss of £153,800 in 2016 due to 'a number of complaints and legal cases relating to some historic business which is now being run down'.
The firm’s chief executive Christine Hallett (pictured below) said these claims relate to ‘investments into Sipps made on an execution only basis in the period 2011-13’.
A BBC investigation has found the FOS is considering 77 claims against Carey Pensions and 24 provisional decisions have been made ruling in favour of the client and against the Sipp firm.
The FOS claims were based on the due diligence by Carey Pensions on an unregulated introducer which was selling investments in storage pod investment Store First, according to the report.
The You and Yours report also said one of the introducers involved in passing business to Carey Pensions previously had a warning about him from the Financial Services Authority.
Carey Pensions is offering some investors who have gone to the FOS reduced settlement payments. The condition of these are that investors withdraw their FOS complaint, so no final decision is published, and that a non-disclosure agreement is signed.
Hallett said she ‘fundamentally disagrees with some of the findings of the FOS’ provisional decisions’ and claims her firm did carry out appropriate due diligence on introducers and never provided advice on underlying investments.
Claims firms involvement
With many claims firms interested in pursuing Sipp firms for investors who only used unregulated introducers and not IFAs, it is easy to see why no Sipp firm wants a final decision posted on the FOS website.
A public final decision against the Sipp could lead to more claims firms taking cases to the FOS and using the same argument which the FOS picked up on.
However even if the claims are being settled and no final decisions are posted, this suggests the FOS may have revisited its stance, according to Chris Jones, principal at Sipp consultancy business Rock Consultancy.
‘We don’t know the facts of how these [Sipp] plans were established and the exact role that Carey took,’ he said. ‘In other similar cases the Ombudsman found in favour of the Sipp provider but I wonder whether this might be the Ombudsman returning to the Berkeley Burke decision of 2014.’
When asked if the Carey initial decisions mean it has changed its position, a spokeswoman from the FOS said: ‘We are still at the informal stage of our complaints handling process and we will consider each case on its own individual merits. Given the early stage we’re at with our investigation of these complaints, we cannot comment on what our position is on these cases.’
This issue of Sipp liability is not specific to Carey Pensions: claims have been brought forward against a number of Sipp firms.
One claims firm, Neglect Assist, is bringing forward cases against Carey Pensions, as well as Liberty Sipp and Berkeley Burke.
Tim Hampson, a senior associate at Neglect Assist, said he is taking cases against the Sipp firms not to the FOS but to the High Court and is hopeful of getting a trial date against Carey Pensions started in the first quarter of 2018.
The Neglect Assist cases against these three Sipp firms are similar to the cases which Carey Pensions has settled, in that they are based around the involvement of an unregulated introducer.
Neglect Assist will argue that section 27 of the Financial Services and Markets Act 2000 says if an unregulated introducer is in breach of the general prohibition by providing advice when it was not authorised to do so, the investor should be allowed to unwind the transaction and claim compensation on losses.
As the Sipp firm is the regulated party in the process, Neglect Assist is bringing the cases against them. Liberty Sipp and Berkeley Burke were unavailable for comment.
John Moret, director of consultancy MoretoSipps, said more claims are likely to come to the surface.
‘I think this is the tip of the iceberg and I think the ramifications could be significant for a lot of smaller Sipps and even some larger ones,’ he said.
‘These claims take a while to unwind and maybe some of it is spurred on by the actions of the claims chasers. But equally the attitude of the regulator has hardened and maybe some firms have taken the view it is better to settle now than go through the courts.’
Hallett said: 'In its contractual documentation with all of its members Carey required them to confirm whether they had received advice. If a member now says they were “advised” by a third party but told Carey at the time that they had not been advised then it cannot possibly be considered to be fair, reasonable or lawful for Carey to be in any way responsible for the decisions any member made or any losses they may have suffered on the basis of that “advice.”'
Hampson said if the High Court finds against the Sipp firms then this will have an effect on cases brought to the FOS.
‘If there is a finding in the High Court which is based around section 27 of the Financial Services Markets Act then FOS will be bound to follow that because it will be a High Court judge giving their judgement,’ he said. ‘I suspect the FOS will read that with interest and possibly apply it to all of these standalone Sipp cases where there is no regulated IFA involved.’
The FSCS also appeared to change its stance on claims against Sipp operators in January, issuing a statement that if Sipp firms have accepted any business from unregulated introducers they could be liable.
The common theme in the successful complaints so far is the presence of unregulated introducers in the process. New Model Adviser® has previously reported that the Financial Conduct Authority drew Sipp providers' attention to a warning note it published about relationships with such firms.
Now some of these Sipp providers face the prospect of large compensation bills over these claims.