The Financial Services Compensation Scheme (FSCS) has issued a warning over Sipp transfers, echoing the FCA’s announcement in April.
The FSCS has said it has been dealing with “increasing volumes” of claims relating to advice given to consumers to switch from conventional pensions to a Sipp.
In the 184-page annual report, Mark Neale, chief executive of the scheme, said, “FSCS’s experience accords with concerns that the FCA has raised regarding the conduct of such firms and the potential for significant consumer detriment as a result of investors being encouraged to invest their pension funds in high-risk assets, many of which are illiquid.”
He said the result is that investors cannot access their funds. FSCS has been establishing the liability of the firms involved in this business and the losses that can be attributed to them, however this can be complicated by the esoteric nature of many of the investments placed in Sipps, Mr Neale added.
The FCA also warned in April that advice to transfer assets into more esoteric investments within Sipps is to come under a greater level of scrutiny, prompting a thematic review into transfer values and Sipp operators.
The results of the review, announced on 21 July, revealed there are still firms failing to fulfil regulatory obligations, thus identifying a risk of customers losing out on retirement income due to poor advice.
The review found that in a third of cases, advice given to customers was not suitable, although it was not equally spread across firms.
The FCA sent out a “Dear CEO” letter to Sipp providers on 21 July, stating the thematic review found “most Sipp operators failed to undertake adequate due diligence on high-risk, speculative and non-standard investments.” Martin Tilley, director of technical services at Dentons, said he for one was surprised by the letter. His view is that most of the bespoke Sipp operators were doing a prudent job and that it had a been “a few ruining it for the many.”
He said the, “review might also be one of the catalysts to consolidation in the market. Although, depending upon the capital adequacy rules, expected to be issued this month, the potential acquirers will need to take into account the potential liability of acquiring other Sipp firms who have not made the FCA’s required standards previously.”
