Sometimes, it seems like the defined benefit transfer saga will never end. Nowhere is this delay more frustrating than for consumers still awaiting compensation.
Clients of Kingsway Wealth Management, for example, which went into administration in January 2020, might have expected to receive some good news by now.
Yet they will have to wait a little while longer, as an administrators’ report shows that the IFA’s liquidators are relying on a major court case against Sipp provider Carey Pensions winding up as they mount a legal defence against potential claims.
That court case has itself been a drawn-out affair. Now, with advice firms awaiting its conclusion before making their next moves, questions are being asked about the complex system of regulation that has led to the delays.
Money Marketing readers may recall the significance of the Carey Pensions case – it relates to how much responsibility a Sipp provider has to vet client investments that go wrong.
Former client Russell Adams accused the provider of being responsible for his investment losses in storage pods. Carey Pensions, now re-branded as Options SIPP UK LLP, initially won the case, but the courts granted an appeal against the landmark Sipp ruling.
Many DB transfer watchers are now waiting for the appeal showdown, set for early March. These include the administrators of Kingsway. This is because the IFA racked up an estimated £2.7m in potential liabilities from complaints about pension transfers.
The latest administrators’ report dated 25 January 2021, references the appeal several times. There is a significant paragraph towards the end in particular.
It reads: “The company had a number of purported claims against it in respect of advice given with regard to investing in Sipps. Under the precedent set in the case of Carey Pensions, we have received a barrister’s opinion that these purported claims are not valid and therefore rejected by the joint administrators.”
This passage is important for two reasons. Firstly, it clarifies why the wind up of Kingsway has already been extended by a year to December 2021. Secondly it suggests there is some way to go on setting clear lines of responsibility between clients, advisers and Sipp providers.
The Carey case did not involve any regulated advisers and its defence rests on the argument that the provider simply executed Adams’s instructions. By contrast, the origin of complaints against Kingsway appear more complicated.
They date from 2009 to 2012, when the dissolved Pension Transfers Ltd was an appointed representative of Kingsway.
Previous reports from the joint administrators say Pension Transfers Ltd dealt with clients’ pension switches from defined contribution schemes into cash. The client and their IFA then invested the money into Sipps, some of which ended up in property schemes in Cyprus or Cape Verde.
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Money Marketing has reported about an adviser, DJ Financial Solutions, who doubled up as a member of Quilter’s network and an unregulated lead generator for Kingsway.
A search for Kingsway on the Financial Ombudsman Service website shows at least 10 decisions against it since February 2014.
One upheld decision from January 2018 notes the client, Mr P, says he was introduced to Kingsway by advice firm DJ Financial Solutions in 2011.
Mr P transferred his existing pension plans to a Sipp and said he was not advised about the risks of investing there compared to leaving his pension alone.
The ruling says the introducer was both an appointed representative of an unnamed network and also had an unregulated second business.
A search on the FCA register shows DJ Financial Solutions has been an appointed representative of Quilter Financial Services since 24 April 2009.
The ombudsman held Kingsway liable for advice to invest in the Sipp, but Kingsway argued that DJ Financial Solutions should have taken the blame.
This line of argument appears to be what the joint administrators and their legal advisers hope the Carey ruling will establish for Kingsway.
The latest report from last month says: “In the recent landmark decision of the court in the case Carey Pensions the court gave clarity on provider responsibility when accepting investments into a Sipp.
“Our advice including that from our senior counsel is that the company’s defences to creditor claims for misselling are aligned to those put forward and accepted in Carey Pensions.
“The company did not provide advice nor make investment recommendations or decisions based on the way money was invested in the Sipp; the client’s IFAs determined that.”
The joint administrators add they cannot complete the administration until the ruling comes through.
Clarity for them and other Sipp watchers cannot come soon enough as Kingsway is on the Financial Services Compensation Scheme default list.
The same is true for Guinness Mahon, Liberty Sipp and Berkeley Burke Sipp Administration.
Clients, advisers and Sipp providers need and deserve these matters to be settled to give them peace of mind.
The SIPP provider simply can not be held accountable for the Investment, performance or structure, Its the Adviser’s responsibility, unless a clear line of relationship can be identified between the eventual investment product and and the Provider of the SIPP, as in Keith Popperwell, and his storage units. Another is Avalon SIPP and eastern property fund investments. But then again this comes down to the Regulator failing to act quickly, after having been informed by the industry.. I have a client looking for a DB adviser, with a TV of only £85,000, guess what, Baroness A, you got it, I can not find anybody interested.
The FCA several years ago published a statement of its “expectations” that SIPP providers should, on a client by client basis, assess the suitability for clients of proposed investments, even if put forward by a regulated FA.
But it wasn’t a firm rule, so most if not all providers simply took no notice and the FCA made no effort to check.
Why didn’t the FCA enact a rule requiring SIPP providers to check suitability (if only of non-mainstream investments), submit periodic returns and then investigate any data indicating that they were facilitating ultra-high risk off-piste investments?
Given that the number of SIPP providers is quite small (at a guess, perhaps no more than a couple of dozen), one would think this should be a pretty easy thing for the FCA to do, requiring no more than a couple of members of staff. Why didn’t it?
I once asked the CEO of Abbey Life, a Mr N Tointon, why had Abbey Life allowed the transfering of three clients over 68 year old personal pensions to the Norton Motor Cycle Company Pension Scheme, his retort, if its got a “P” number we send the cheque. He is now retired on a DB Pension
Robert Milligan is right – the SIPP provider merely provides the HMRC approved pension structure – including access to those investments HMRC has approved for inclusion within SIPPs. The question of advising the policy holder on suitable investments and for their selection, lies only with the investment manager/adviser appointed by the SIPP holder him/herself. There is nothing inherently wrong with investing in storage units – it can be a massively lucrative business. However, derelict ex-haulage containers parked in a paddock in remotest Lincolnshire are not what any sensible investment adviser should have had in mind. Some promotors of such investment schemes have a habit of pocketing investors’ money for themselves. The FCA won’t devote the resources to stop them – because seeking to control the charging structures of the honest is more appealing to them.
I always thought that SIPP’s were Self Invested Personal Pensions.
If even with an IFA in place, the provider still needs to assess suitability, then how is this Self Invested.