A duty of care

The Sipp has long been a key part of the independent financial adviser’s armoury – not an option for general use, perhaps, but one that fits the needs and aspirations of a range of client types.

However the current lack of regulations imposed on Sipp operators is a concern that advisers should not ignore and any principal of an adviser firm should view the latest moves by the FCA to curb Sipp excesses as something to be welcomed.

The thematic review published last October identified poor systems and controls within Sipp operators as specific areas of concern, along with the lack of good management information.

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From the FCA viewpoint, good management information is critical as it will enable proper monitoring of how well systems and controls operate in practice. All due diligence needs to be properly recorded and systems need to be in place to ensure an efficient approval and sign-off process.

The question of due diligence on investment options to be included in a client’s Sipp is a key one. What the regulator seems to be saying – and rightly so – is that it is not enough to look at the performance of the investment vehicle and Sipp operators should also investigate the validity and sustainability of the underlying organisation that is providing the investment before accepting it into a client’s portfolio.

The FCA will not hold the Sipp operator responsible for the suitability of the advice given to clients, but will expect it to take responsibility for the “quality” of the business it accepts. Where it permits high volumes of inappropriate business – or where it does not have systems and controls in place to monitor whether business is appropriate – Sipp operators should expect to be held accountable by the regulator.

Advisers have a responsibility for ensuring the suitability of the investment vehicle and must, therefore, ensure that the Sipp operator has systems in place to carry out and record the due diligence. However advisers have a duty of care to the client and should not simply rely on the due diligence carried out by the Sipp operator.


For the Sipp operator, managing risk is a challenge when the investment portfolios include unregulated investments. A particular area of concern for Sipp operators would be the risks involved in accepting non-standard or unregulated investments, particularly where those cases are non-advised, and in monitoring and managing relationships with introducers.

The changes proposed to the capital adequacy requirement that were published in November 2012 are going to impose significant financial burdens on smaller Sipp operators as well as those that permit high volumes of ‘non-standard’ investments.

The capital adequacy is based on assets under administration rather than costs, which will make it imperative that operators record accurate data concerning their Sipp book.