The 'Store First' case
A husband and wife each invested £40,000 from their Berkeley Burke-administered SIPPs into storage pods developed by Store First following a cold-call from an off-shore adviser a number of years ago. The couple initially turned to their IFA, Matthew Harris of Harris Independent Financial Advice, after they stopped receiving returns and could not track down the off-shore adviser.
The couple last year made a complaint to the Financial Ombudsman Service (FOS) which is still under review. Mr Harris has recently said he wants the FOS to acknowledge that Berkeley Burke should have checked the investments before transferring the couple's pensions into its SIPP and that it is therefore responsible for the couple's losses.
Mr Harris explained that the storage pods were effectively worthless assets because they are not rented out and cannot be sold on an open market, meaning the couple has a pension they cannot surrender.
Uncertainty for SIPP providers
It is unclear how the FOS will respond to the 'Store First' case and whether, based on its treatment of previous cases, it will be willing to find that Berkeley Burke was responsible in any way for the investors' losses. This uncertainty for SIPP providers is compounded by the Pensions Ombudsman Service's (POS) different approach to similar complaints and a recent FCA statement.
Previous FOS decisions
In 2014, the FOS ruled that Berkeley Burke had failed to ensure that an investment by a SIPP holder was suitable. 'Mr A' had invested his entire pension fund of £29,000 into high-risk, unregulated bio-fuel investment products in South East Asia and subsequently complained about the lack of due diligence conducted by Berkeley Burke. Berkeley Burke argued that it was not authorised to give financial advice and that it had not done so in any event in the case of Mr A. The FOS is now re-reviewing the case following Berkley Burke's launch of a judicial review of the FOS's decision.
Conversely, the POS found in favour of Berkeley Burke in a case with similar facts to that of the 'Mr A' case. This was on the basis that the selection of investments was not the responsibility of the SIPP providers and that it was not up to Berkeley Burke to carry out the level of due diligence which was complained about.
In the last month, the FCA released a statement which warned that an authorised firm which accepts business from an introducer must meet its regulatory requirements. The statement goes on to say that if customers are given unsuitable advice by an introducer, the authorised firm may be held responsible for this and be subject to regulatory action. This statement follows guidance released by the FCA in 2013 in which it noted that, although SIPP providers are not responsible for SIPP advice given by third party financial advisers, they should have procedures in place which enable them to identify possible consumer detriment.
Advice for SIPP Providers
The regulatory landscape in this area is clearly changing. SIPP providers should take into account the FCA's latest statement and monitor the outcome of the 'Store First' case and others like it. They should be cautious when presented with non-mainstream or unregulated investments and consider whether any heightened due diligence should be undertaken in the circumstances. Similarly, if they are faced with FOS or POS complaints, they should seek advice as to how best to deal with such claims.