Last summer the FOS upheld a complaint against a SIPP provider for failing to establish that an "unusual and esoteric" investment was suitable for the complainant. The decision has been described by solicitors as a "game changer" with it likely being that there are "literally hundreds of SIPP cases where this decision would apply".
The investor, Mr A, transferred his entire £29,000 personal pension fund into a SIPP provided by the respondent, Berkeley Burke SIPP Administration Limited (BBSAL) to which he was introduced by an unregulated agent.
Most of the SIPP was invested in a biofuel scheme, Sustainable AgroEnergy, which later went into administration. As a result, Mr A lost his entire fund. BBSAL submitted that it was not authorised to advise Mr A, nor had it done so. Further BBSAL stated that Mr A had signed an alternative investments form acknowledging that BBSAL had not advised him and that the investment was high risk.
In reaching his decision the Ombudsman said that he was obliged to take account of the examples of "good practice" set out in a thematic review of SIPP operators by the Financial Conduct Authority in 2009.
The Ombudsman determined that BBSAL had not met these standards and subsequently held that:
"Sustainable AgroEnergy was an unusual and esoteric investment. This was a relatively small value SIPP invested in an unusual and new investment. Mr A also waived his cancellation rights. These factors should all have alerted BBSAL to the fact that this investment and the SIPP were potentially unsuitable for him. I consider that BBSAL should have made further enquiries to establish whether the investment was suitable for Mr A."
The Ombudsman directed BBSAL to pay Mr A the difference between the value of his SIPP fund which of course was nil and its value if it had been invested in the FTSE WMA Stock Market Income Total Return Index.
Then in September 2014 the FOS announced its intention re-examine a complaint. A spokesman for the Ombudsman said that following the decision, BBSAL had commenced judicial review proceedings alongside 40 other SIPP firms and the "outcome of that process was that the Ombudsman will now consider the complaint afresh."
Association of Member-Directed Pension Schemes chairman Neil MacGillivray recently attended a meeting of providers convened by BBSAL to consider the Ombudsman's original decision. He commented that providers "fully accept we have to do due diligence, but the question is how much". Describing the Ombudsman's first decision as "harsh" he called for "more clarity from the FCA on this".
Berkeley Burke’s comments…
In October BBSAL broke its silence on the matter. There had been claims that Mr A had been ‘bought’ off to agree to the FOS reviewing its decision but the firm denied this allegation, adding that even if the review overturned the original decision, Mr A would still be able to claim for compensation if he did not agree with the findings.
BBSAL also revealed that it had failed to secure financial support from its professional indemnity insurer or from trade body the Association of Member-Directed Pension Schemes in relation to the judicial review, but had then gained non-financial support from Conservative MP for South Leicestershire Andrew Robathan and House of Lords peer the Lord Leigh of Hurley.
Latest Pensions Ombudsman Service (POS) Decision
With the FOS review still pending, the POS has ruled in favour of BBSAL on a different matter with very similar circumstances. The Ombudsman determined that in this instance BBSAL could not have done much more to comply with its obligations.
The investor, Mr B, opened a SIPP with BBSAL having received financial advice from a regulated adviser, investing approximately £82,000 in Harlequin Property and Green Oil Plantations.
Upon having been engaged by Mr B, BBSAL sent him a welcome letter that acknowledged his potential investments and clearly stated:
“… acceptance of an investment by us in a SIPP does not mean we endorse the investment, nor its suitability to meet your own financial objectives or investment risk profile…”.
Mr B signed and returned the letter confirming that he understood the issues outlined. In further correspondence with BBSAL he acknowledged that:
- His choice of his investment was high risk; and
- BBSAL had recommended that he seek professional financial advice but he had ignored this advice; and
- BBSAL acted on his direction and provided no financial advice on the investment.
After his complaint failed Mr B complained to the POS, alleging that BBSAL, as a trustee of the SIPP, owed a high standard of due diligence and a duty to offer suitable SIPP investments to clients, especially clients with little to no investment experience.
However, the Ombudsman held that BBSAL did not owe a duty of care to consider the appropriateness of the investments. The selection of investments was not a decision within the remit of the trustee and the contractual evidence made it plain that Mr B had selected the investments. The extent of BBSAL’s responsibility was ensuring that the investment fell within HMRC’s permitted list.
In considering whether the FCA imposed any wider due diligence responsibilities on BBSAL the Ombudsman considered the FCA’s 1999 Report where it had recommended that SIPP providers put in place controls to “flag potential instances of unsuitable or poor investment advice”. However, the Ombudsman concluded that these recommendations did not apply to this case as Mr B had agreed to make the investments without any advice.
The conclusion was reached that “… the basic checks…were sufficient to meet the requirements imposed on them by the regulator and HMRC for such investments” and further that BBSAL had “complied with their obligations, gave him clear warnings and explained they would not be liable for losses in the particular investments that he chose…”.
The new FOS decision is currently awaited and it will be interesting to see whether it is prepared to reverse its initial findings and follow the example of the POS.