The news that Sipp provider GPC Sipp is facing around 150 legal claims for compensation in relation to losses incurred from unregulated investments in the Harlequin property fund will be ringing alarm bells in many offices.
The case is expected to enter the courts early next year and follows a number of other yet-to-be-concluded court cases against Sipp providers, which also centre on failed unregulated investments, often facilitated in concentrations via unregulated introducers.
In one of the cases, a Sipp provider is challenging a Financial Ombudsman Service decision from 2014 that it had to compensate a client after it failed to carry out adviser-style due diligence on his investment.
In another case along similar lines, a provider is arguing it was not responsible for the client’s failed investments as the client had invested on an execution-only basis and signed a contract saying it was his choice to do so.
The FCA has participated in both of these cases, expressing the view that a Sipp firm cannot escape its duty of care towards its clients, regardless of whether the business was written on an advised or non-advised basis.
The outcome of these cases could have profound implications for the Sipp industry. According to some insiders, if it goes the wrong way, it could lead to a large-scale winding up of Sipps, leaving significantly fewer full Sipp providers in the marketplace than there are today.
And for those that continue in business, many will probably need to fundamentally review the way their Sipps are set up and run – in particular, if all unregulated investments into Sipps are banned and/or no investments are permitted via unregulated introducers.
The FCA is arguing that acquiring assets in a Sipp forms part of operating the Sipp and this gives providers a duty to vet all the investments made. This duty and the responsibility it conveys would be classified as a regulated activity under the Financial Services and Markets Act 2000, with all that means for both the provider and the client.
In the meantime, advisers and providers dealing with self-invested pensions must be on their guard. Claims management companies appear to be shifting their attention to the space as the deadline for PPI claims approaches.
According to some reports, the claims management industry is visibly trawling for prospective clients in the self-invested market, although the extent to which a Sipp is actually self-invested and where the boundaries lie should serve to limit the extent of their success.
That said, both FOS and Financial Services Compensation Scheme complaints linked to Sipps are on the rise.
This is all part of the gathering storm currently afflicting the Sipp market and it could yet get worse before it gets better. Let’s hope for calmer days to come, with a clearer picture emerging as to the way ahead for this important, but currently beleaguered, part of our industry.
Malcolm McLean is senior consultant at Barnett Waddingham