On December 7 2015, the Financial Conduct Authority (FCA) issued a Warning Notice to an individual whose firm is alleged to be advising clients to transfer their pension savings into Self Invested Personal Pensions (SIPPs). The individual is said to be both the chief executive and a director of the firm. As with previous Warning Notices, neither the individual nor the firm is named.
The FCA believes that a number of the firm’s clients have transferred into SIPPs which are not suitable for them, and that the firm failed to comply with the High Level Principles for firms that require communications with customers to be clear, fair and not misleading; and ask that customers are treated fairly.
SIPPs are considered to be a high risk area by the regulator, and firms active in this market can expect considerable scrutiny. They are complex products which often carry high charges. 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. Many claims management companies are also inviting clients to contact them if they believe they have been sold a SIPP without sufficient justification.
Firms recommending SIPPs must note that they are responsible not only for ensuring the plan itself is suitable, but also that the underlying investments are suitable, given the client’s needs, financial position, attitude to risk and capacity for loss.
Some SIPPs allow investment in high risk, complex Unregulated Collective Investment Schemes, which might include investment in precious metals or jewels, overseas property developments, forestry and film schemes. If the underlying investments in a SIPP are unregulated, then the client may not have recourse to the Financial Ombudsman Service or Financial Services Compensation Scheme.
The individual is also a shareholder and a director of an unregulated firm which has been introducing business to his FCA authorised firm. He has therefore benefitted from the advice to switch in two ways, having received both fees for the advice given and commission paid by the authorised firm to the introducer firm. Another allegation made by the FCA is that he has failed to disclose this conflict of interest to clients, or take steps to manage and mitigate the conflict.
The FCA believes that the individual is in breach of Principle 7 of the FCA’s Statement of Principles for Approved Persons, which says that:
“An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the relevant requirements and standards of the regulatory system.”
Following the publication of a Warning Notice, the individual or firm concerned is entitled to make representations to the FCA’s Regulatory Decisions Committee. This Committee will then decide whether to issue a Decision Notice, i.e. it will decide whether it is appropriate to take enforcement action against the individual.
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.