How can more certainty be created in the SIPP?
I was reading some figures today from the Financial Ombudsman that illustrated that SIPPs were the product that attracted most complaints and, more specifically, complaints that were upheld. Indeed, the number of reports of such cases in the trade press seems to be increasing rapidly.
This follows hard on the heels of recently published FSCS statistics that showed that during the 2015 to 2016 financial year they paid out £83.8 million, 92% of which related to ‘non-standard investments’. I use this phrase generically and not the specifically defined term used in the Capital Adequacy rules.
None of this surprises me and indeed I seem to have been writing about this for a good number of years.
The first thematic review from the Regulator was in 2009, SIPPs having become regulated two years previously. They concluded that, “...when taken as whole, SIPP operators did not pose a significant risk to our statutory objectives.”
This started to change in 2011 and the Regulator spoke about “poor firm conduct and the potential for significant consumer detriment”.
However, the real signal of things to come was the comment “We also found inadequate controls over the investments held within some SIPPs.”
The rest of the regulatory history tells what has become a familiar story. In 2014 we had data about complaints doubling and evidence from the FOS showing that almost three quarters of the complaints were about ‘advice’ to invest into unregulated and unsuitable investments.
In April 2014 the FCA issued an alert specifying that “...some firms continue to operate a model where they purportedly restrict their advice to the merits of the SIPP wrapper. We think advising on the suitability of a pension transfer or switch cannot be reasonably done without considering both the customer’s existing pension arrangement and the underlying investments intended to be held within the SIPP.”
However, the FOS and FSCS figures show that we do not appear to be learning any lessons.
As I see it there have been a number of permutations.
- SIPP investor uses an authorised adviser who advises on the whole process from start to finish.
- SIPP investor has had contact with an unregulated ‘introducer’ who has suggested an investment in a particular asset to be put into a SIPP.
- There also seem to have been suggestions of individuals agreeing the investment and then going to an authorised adviser who waves it through as execution–only.
- SIPP investor has had no advice.
The first scenario is not really the problem. But in the absence of a qualified intermediary, where do the responsibilities lie?
The relationship between SIPP operator and investor has always sat awkwardly on a combination of trust law and contract law. Some would arguable that the SIPP operator, as the recipient, could be held to account.
SIPP operators are also more than welcome to walk away from investments that they feel should not be held. If they do not, then is this tacit acceptance? Due diligence could be vital!
In terms of non-advised investors, the growth of DIY investment and D2C SIPPs means that more people are taking their own investment decisions. Inherently there is no problem with this but we must be wary of placing too much responsibility onto providers if the end result is that non-advised investors find themselves paying higher charges for a more restrictive service.
And if a direct investor wants to take a risk on an esoteric investment in their SIPP, knowing they have secure investments elsewhere, why should they not be able to do this if they are going in with eyes wide open? Caveat emptor!
One good move might be to make a revised call for a permitted investment list. If we had a definitive list of what SIPPs could and could not invest in, then perhaps we could create some certainty for providers, advisers and clients, and finally put some of these trends into reverse.