SIPP expert John Moret has called on the Treasury to instigate a review and rewrite of SIPP regulation following a number of SIPP provider failures, many of which have been triggered by adverse findings by the Financial Ombudsman.
The chair of advisory firm Intelligent Pensions and founder of MoretoSIPPs called the SIPP regulatory framework “not fit for purpose” and said it has never been properly understood or enforced since its creation in 2007.
Moret said: “It is worrying that the Financial Ombudsman appears to be making up the rules as they go along relying heavily on historic FSA and FCA guidance which they are interpreting as good practice at the time. They are also applying a court decision on a SIPP scam to a range of other situations and concluding that this is fair and reasonable.
“The implications for providers of all types of SIPP, particularly those operating on an execution only basis, are significant and the inconsistencies in determinations reached by FOS are of real concern.”
Moret said inconsistencies regarding due diligence requirements for SIPP providers means there needs to be greater clarity around provider’s responsibilities in accepting investments, particularly on an execution-only basis.
He cites as an example a claim against an execution only SIPP provider, which was not upheld. FOS confirmed that as the claimant had signed documents acknowledging that the provider could not be held responsible for the suitability of any investments then the provider could not be held responsible if the investments underperformed or failed. The investments in this case were in the Woodford Patient Capital Trust.
In contrast, Morey says, another recent FOS determination which was upheld against a SIPP provider, involved an execution only client investing in bonds listed on a Danish stockmarket and which the provider deemed to be a standard investment.
“The investment promoter was regulated as was the stockbroker that executed the transaction. The provider warned the investor that he was undertaking a high risk investment and the investor signed a declaration acknowledging this. Most surprisingly FOS said that the provider should have refused to accept this investment unless the investor took ‘professional advice from a suitably qualified and authorised adviser’. Whilst that may indeed have been a sensible action for the investor, to my knowledge there is no obligation on a provider to insist on this.”
Moret has called upon industry bodies including the Treasury, FCA and Financial Ombudsman to clarify what constitutes an “acceptable” or “appropriate” investment. Moret believes they must also make clear precisely what is required of a SIPP operator with regard to due diligence of investments, both standard and non-standard, and of introducers, as well as confirm to what extent these requirements apply where the SIPP was accepted on an execution-only basis.
Moret said: “Whilst this guidance might not help resolve historic claims it would be a useful indicator of what is “fair and reasonable”. It would also provide much needed comfort for providers and advisers against the potential for future claims and would limit the scope for claims management companies to create unjustified consumer expectations and, as a result, increased overhead and administration costs for providers and more regulatory costs for advisers.
“In recent months the FCA have come in for considerable criticism for dilatory action on a range of failed investments and scams. Now is the time for action on SIPPs and non-workplace pensions – the market for which continues to grow. Having been involved with SIPPs since their launch in 1990 I hope the Treasury and regulator understand that these suggestions are made with the best interests of all parties involved in mind.”
