An adviser has asked the Financial Ombudsman Service (FOS) to hold self-invested personal pension (SIPP) provider Berkeley Burke accountable over its failure to stop a pension transfer into high risk storage pods, in a case which could re-open the debate about liability for SIPP investments.
Harris Independent Financial Advice adviser Matthew Harris said he wanted FOS to acknowledge Berkeley Burke had a role to play in allowing his clients to transfer their entire savings into the illiquid investments, which have since become “worthless”.
The ombudsman had already ruled against Berkeley Burke in a similar case in 2014 – then hailed as a game-changer by regulatory lawyers – but it had reopened the file after the SIPP operator called for a judicial review of the decision.
Harris’ clients, a husband and wife pair, invested £40,000 each in storage pods developed by Store First after they were cold-called by an off-shore adviser some years ago.
They contacted Harris to help them claw back the funds after the returns dried up and their adviser had vanished.
What’s more, as the value of their pension was falling, Berkeley Burke asked for more money to cover the cost of the SIPP administration. Harris said the couple were being charged a total of £400 each quarter in fees.
Their assets have not been independently valued but Harris thought they were effectively worth nothing because they are not being rented out and can’t be sold.
“The couple still have the assets but lost money because of the charges. The value of the assets is effectively zero because they are not rented and can’t be sold because there is no open market demand for these. They have a pension they can’t surrender,” he said.
Harris said the couple had asked Store First to sell the pods on their behalf last year. The company told them it had put them “on a list” but they have heard nothing since.
Store First said they offer a buyback option on their products but that this was not to be misunderstood for any sort of guarantee. It was down to the discretion of the company to buy units back.
The ombudsman received the couple’s claims about a year ago and has since confirmed it is still deliberating what to do. It could not comment further while the case was ongoing, it told Professional Adviser.
Harris said he wants the FOS to acknowledge Berkeley Burke should have checked the investments before transferring the couple’s pensions into its SIPP and is thus responsible for their loss.
He said the fact FOS had delayed making a decision on the case suggested it was still reviewing its approach.
Berkeley Burke was unavailable for comment.
Jury’s out
It is still unclear how the FOS intends to act in such cases. In June 2014, the FOS ruled that in the case of a ‘Mr A’ – who invested his entire pension fund of £29,000 in Sustainable Agro Energy, a high risk, unregulated scheme selling bio-fuel investment products in South East Asia – Berkeley Burke had failed to ensure the investment was suitable.
Lawyers said at the time the decision could have repercussions for hundreds of other cases where investors lost money after putting their retirement funds in esoteric investments via a SIPP and were later chasing their SIPP provider for compensation.
But Berkeley Burke argued it was not authorised to give financial advice and had not advised Mr A as to the appropriateness of the investment, nor was it its responsibility to do so.
So far, SIPP providers have not been held liable for the investments on their books because they do not give advice. However, a statement from the Financial Conduct Authority (FCA) in August could change that.
The statement said: “An authorised firm which accepts business from an introducer must meet its regulatory requirements. If customers are given unsuitable advice by an introducer, the authorised firm may be held responsible for this and subject to regulatory action.”
If customers are given unsuitable advice by an introducer, the authorised firm may be held responsible for this and subject to regulatory action
It is widely understood the FCA was referring to both advisers and providers in its statement.
The regulator had already hinted it was minded to shift some liability onto SIPP providers in a guidance issued in October 2013. Although accepting providers were not responsible for any advice given, the paper stated they had a duty to identify possible consumer detriment.
The FCA said: “Principle 6 of the FCA’s Principles for Businesses requires all firms to pay due regard to the interest of its customers and treat them fairly.
“SIPP operators are not responsible for the SIPP advice given by third parties such as financial advisers. We would expect SIPP operators to have procedures and controls in place that enable them to gather and analyse management information that will enable them to identify possible instances of financial crime and consumer detriment.”
The guidance had followed a thematic report of SIPP operators by the previous regulator, the Financial Services Authority, in 2009, which provided a list of examples of ‘good practice’ which the regulator recommended – though did not explicitly demand – providers follow.
These included confirming clients’ advisers were regulated; recording and reviewing the type and size of investments recommended by intermediaries so that potentially unsuitable SIPPs can be identified; being able to identify anomalous investments; and identifying instances of clients waiving their cancellation rights.
However, Dentons Pensions director of technical services Marin Tilley questioned the FOS’ jurisdiction over SIPP providers.
He said: “The memorandum of understanding between the Pensions Ombudsman (PO) and FOS suggests PO deals with pensions and admin issues whereas FOS should deal with advice. As a SIPP provider never gives advice it’s difficult to see why [the case] has remained with FOS.”
A SIPP provider never gives advice so it’s difficult to see why [the case] has remained with FOS
He suggested latest FCA rhetoric showed a tougher approach on providers, however, any case predating the 2013 directive was unlikely to succeed.
He said: “PO [has] already found on numerous occasions that investment selection and acceptance was not the responsibility of the SIPP provider unless such investment came after the FCA’s directive to SIPPs, which would have been post 2013. It’s difficult to see FOS finding an opposing conclusion to PO especially when it’s not really that body’s remit.
“The recent FCA guidance on avoiding unregulated introducers seems to apply to SIPP providers too, but if the investment was pre-2013 I don’t see the case has high chances of success.”
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