The UK’s financial advisers will collectively need to pay an additional £24 million to the Financial Services Compensation Scheme (FSCS), after the organisation reported that it was still receiving large numbers of claims relating to self-invested personal pensions (SIPPs).
FSCS chief executive Mark Neale commented:
“The supplementary levy arises from continuing growth in the volume of Sipp-related claims falling on life and pension advisers.”
For the advisory firms who have never sold a SIPP, the supplementary levy may seem especially harsh, but all these firms can really hope for is that the FSCS funding model is changed in due course.
The FSCS provides protection for investors when a firm is declared in default, and due to its financial situation is therefore unable to meet claims made against it.
Those firms that do offer advice on SIPPs need to exercise extreme care, as this is a high-risk product, and an area in which a number of claims management companies are active. The Financial Ombudsman Service has been upholding the majority of the SIPP complaints it has received in recent years.
Firms thus need to be confident that a SIPP is the best option for the client before recommending them. They must also note that they are responsible for ensuring that the underlying investments the SIPP contributions will be invested in are suitable for the client’s circumstances and risk profile.
Financial Conduct Authority (FCA) guidance says that when considering pension switches, firms must always ask themselves ‘will the existing plan meet the client’s objectives?’ If the answer to this is Yes, then it becomes very difficult to justify a recommendation to switch, whether to a SIPP or any other form of pension arrangement.
SIPPs are complex products which often carry high charges. They also allow investment in areas not available via a standard personal pension, such as: individual company shares, commercial property, investment trusts, traded endowments, derivatives and precious metals.
A client should not be recommended to switch to a pension arrangement with higher charges without good reason, and a SIPP should not be recommended if the individual requires a simple investment mix that would have been available via a conventional personal pension.
In April 2017, Keith Popplewell was disqualified from acting as a director for a period of nine years, as a direct result of his firm failing to give suitable advice on transfers into SIPPs.
Individuals who have been subject to FCA enforcement action over SIPP mis-selling include Alistair Rae Burns, Chief Executive at TailorMade Independent Limited (TMI), who was prohibited from carrying out any significant influence or senior management roles, and was fined £233,600. TMI director Robert Shaw was also banned from holding senior management functions, and was fined £165,900.
The FSCS has also announced proposals to increase the investment protection to £85,000 per client, from the £50,000 of cover offered at present. This would bring investments in line with the protection offered on bank balances.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.