Uncertainty continues for SIPP trustees and administrators

The Pensions Ombudsman has found for Self- Invested Personal Pension (SIPP) firm Berkeley Burke in circumstances strikingly similar to a previous complaint upheld by the Financial Ombudsman Service (FOS) and which remains the subject of “review”. The decisions before the Pensions Ombudsman and FOS both relate to SIPP investments.

The Pensions Ombudsman reached the conclusion that Berkeley Burke (acting as trustee) had complied with its obligations and could not have done much, if any, more. This decision stands in stark contrast to FOS’ decision to uphold a complaint in similar circumstances where Berkeley Burke was acting as administrator of a SIPP.

The complaint before the Pensions Ombudsman

In August 2011, the complainant, Mr Beasley (Mr B) applied to open a Berkeley Burke (BB) SIPP on advice from a regulated adviser.

BB sent Mr B a welcome letter noting Mr B’s intention to invest in Harlequin Property and Green Oil Plantations. The letter also said “… 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…”. Instead that responsibility rested with Mr B and his professional advisers. Mr B was invited to sign and return the letter also recording that he had read and understood these issues and that he would indemnify BB against any loss and liabilities. Mr B signed and returned the form.

Mr B invested £24,195 in Green Oil Plantations and £58,500 in Harlequin Property. In further letters issued by BB, Mr B confirmed that he was fully aware that the investment was high risk and/or speculative, that he had been recommended to seek professional advice but had chosen not to do so, he was aware that BB acted on an execution only basis as directed by him and that BB had provided no advice on the investment.

The investments subsequently failed and Mr B made a complaint to the Pensions Ombudsman. Mr B argued that BB, as 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.

The Pensions Ombudsman considered BB’s standard of care and whether or not BB owed a duty of care in the terms alleged by Mr B. The Pensions Ombudsman held that BB did not owe a duty of care to consider the appropriateness of the investments. The reason being that the selection of investments was not a decision for the trustee and the contractual documentation made it clear that the investments were selected by and were a matter for Mr B personally. BB’s responsibility was to ensure that as trustee the investment fell within HMRC’s permitted list.

The Pensions Ombudsman then went on to consider whether the Financial Conduct Authority (FCA) imposed wider due diligence responsibilities on BB as its regulator. The Pensions Ombudsman reviewed the FCA’s September 2009 report which found that some SIPP operators had accepted business without undertaking necessary due diligence and recommended that providers put in place controls to “flag potential instances of unsuitable or poor investment advice”. The Pensions Ombudsman concluded that these recommendations did not apply, as in Mr B’s case he had agreed to make the specific investments without any advice.

The Pensions Ombudsman concluded that “… the basic checks which BB undertook at the time were sufficient to meet the requirements imposed on them by the regulator and HMRC for such investments … BB complied with  their obligations, gave him clear warnings and explained they would not be liable for losses in the particular investments that he chose…”.

FOS complaint

So what are the differences between this decision and the complaint upheld by FOS? In a separate FOS complaint made against Berkeley Burke SIPP Administration Limited (BBSAL) (as administrator) by Mr A, FOS found that BBSAL should not have allowed Mr A’s entire pension fund to be invested in an unregulated investment.

Mr A was advised by an unregulated agent. Mr A completed documentation to confirm that BBSAL did not provide advice, the suitability of the investment had not been explained and Mr A had chosen not to seek professional advice. BBSAL wrote to Mr A on receipt of his SIPP application confirming that acceptance of the investment did not mean that BB endorsed it or that the investment was suitable for Mr A and BB could not be held responsible for any losses or liabilities that arose from Mr A’s investment decisions. Mr A signed a declaration confirming that he had read and understood these issues and would indemnify BB against any loss or liabilities. Mr A invested in sustainable agro energies and the investment failed. Mr A complained.

The FOS’ published decision initially upheld the complaint on the basis that “… I agree that there is no specific rule or law (requiring BBSAL to behave in any other way than the way it did) but the guidance issued by the regulator in September 2009 was specifically about the issues raised in this complaint. I am required to take account of that guidance…”.

It was in light of the FCA’s September 2009 report that FOS concluded that BBSAL should have done more to establish whether or not the investment was suitable for Mr A given, in particular, the esoteric and unusual nature of the investment and that Mr A was introduced by an unregulated intermediary. That decision was subsequently withdrawn from FOS’ website and is under “review” indicating that the FOS intends to issue a new decision. That new decision is currently awaited.

Spot the difference?

There are striking similarities between the factual circumstances of the two complaints; both Mr A and Mr B agreed to indemnify BB/BBSAL for any losses or liabilities, both confirmed that they understood that their investment was high risk and were told to take independent advice and both confirmed that BB/BBSAL had not provided any advice. The main difference appears to be that in Mr B’s case he was referred to BB by a regulated financial adviser which advised Mr B to transfer to the BB SIPP but in Mr A’s case he was introduced by an unregulated adviser. Both FOS and the Pensions Ombudsman referred to the September 2009 FCA report; the Pensions Ombudsman concluded that this did not apply as Mr B had agreed to make the investment without advice, in Mr A’s case FOS concluded that the guidelines in the report did apply for the same reason.

So where does this leave SIPP trustees and administrators? The decisions are at best contradictory and arguably leave SIPP trustees and administrators facing a lottery over the jurisdiction in which a complaint is made, with the better bet arguably being the Pensions Ombudsman. It is to be hoped that FOS’ review of its decision will bring some much needed clarity to this area and particularly on the back of the increased FSCS levy for advisers said to be largely due to an increase in complaints relating to SIPPs.