SIPPs (Self-Invested Personal Pensions) allow you to select your own investments for your pension, offering greater financial freedom. However, in recent years there’s been considerable controversy surrounding SIPP providers and how they conduct their business, with many investors losing money as a result of their practices.
The Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) are there to protect investors by regulating firms that provide financial services and products. But the big question is - are the regulations clear enough?
Berkeley Burke vs the FOS
In October 2018, Berkeley Burke lost their High Court appeal against the FOS. It was ruled that they had not carried out appropriate due diligence for one of their clients who invested in an unregulated collective investment scheme.
Berkeley Burke contested the decision, claiming that it created retrospective due diligence obligations for other firms. Their comments raised an important question – do SIPPs providers have a clear enough understanding of exactly what their responsibilities are?
The Broad Principles
As it stands at present, the FOS are within their rights to interpret the following two principles as they wish:
- Companies must conduct their business with due care, diligence and skill.
- They must regard the interests of their customers and treat them fairly.
The application of these principles are not always straightforward, however, which is where the issues arise. After all, if financial firms aren’t 100% certain what due diligence, care and skill looks like in real terms, especially for new products, it makes it difficult for them to know exactly how to carry out their business while remaining within the law.
Certain practices which don’t satisfy these principles become so commonplace that they form a convention. In simple terms, if some companies are doing things a certain way, then other companies might presume their way is correct, without realising that the principles are in fact being broken.
The final ruling against Berkeley Burke even acknowledged that the approach they adopted regarding due diligence may well be common practice among SIPPs providers across the country – but asserted that this practice wasn’t a good one.
Highlighting the Failings
The Berkeley Burke case has highlighted significant failings in the system (and with the SIPPs providers themselves), when accepting business from both regulated and non-regulated advisors.
Such investments included: Ethical Forestry Sustainable Timber Investments, Global Plantation Investments, Sustainable Agro energy, Gas Verdant Investment and Gravity Child Care Limited.
The problem is, clients probably don’t know if their advisors are regulated or not until they experience issues. And, without an in-depth code of conduct, SIPPs providers are unsure how to discharge their duties appropriately. It’s a vicious circle and needs to be addressed.
Resolving the Problem
To protect clients (and financial companies), detailed rules need to be in place, specifying the steps the SIPPs provider should undertake when selling investment products. Given that the FCA first started regulating SIPPs back in 2007, this is something that seems long overdue.
Mis-sold Your SIPPs?
If you suspect that you’ve been mis-sold a SIPP, Goodwin Barrett can help. To find out more, get in touch today by calling 0808 149 4647.