A decision by the Financial Services Compensation Scheme to value investments held in controversial overseas property group Harlequin at 100 per cent for the purposes of compensation is set to be questioned by a claims lawyer seeking higher payouts for investors.
FSCS has finally confirmed it will pay out redress on claims against failed advisory firms related to lost pension growth, but it has said it still reviewing whether the advisers would have been liable for any losses sustained on the underlying propertiess.
A spokesperson told FTAdviser the scheme is paying interim compensation for Sipp switching claims to compensate consumers for lost pension growth and charges taken from their Sipps, but not yet losses on investments.
According to a claims valuation document on FSCS headed paper, sent to investors by law firm Regulatory Legal, Harlequin investments are being valued at 100 per cent for the purposes of determining the value of compensation.
The law firm said in an accompanying letter it wants to persuade the FSCS to instead use a valuation figures applied by the Sipp administrators. These valuations are often lower and in some cases close to zero, which would increase the potential compensation due.
In July last year, for example, FTAdviser revealed the Lifetime Sipp Company wrote to investors telling them that the value of their investments has been written down to a nominal £1.
Also in July the FSCS published an update stating that it was investigating claims that it had received in order to establish if failed IFAs who conducted switches where funds were transferred to Sipps invested in non-mainstream assets, would be liable.
In August, the FSCS announced formally that it had been receiving queries from investors regarding protection in respect of Harlequin Hotels and Resorts.
At the time, the compensation scheme said that to pay redress it needed to be “satisfied” that authorised firms which had gone out of business were legally liable for any losses potentially suffered by Harlequin investors.
The claims being paid are in relation to advice firms gave to transfer funds from existing pension schemes to Sipps. At the time, the FSCS said in many cases the Sipp fund was then invested in non-standard asset classes, such as Harlequin, many of which have become illiquid.
In April last year, the FCA banned two partners at 1 Stop Financial Services for advising nearly 2,000 customers on switching their pensions – valued at in excess of £112m – into Sipps. Half of that amount went to Harlequin.
An FSCS spokesperson said: “We are not compensating losses on investments, including Harlequin Property held in Sipps, because IFAs’ legal liability for these losses is not certain.
“Top-up payments will be made if legal advice confirms that firms who arranged transfers into Sipps are liable for loss on investments held in those Sipps also.”
In an update sent to Harlequin investors, law firm Regulatory Legal confirmed this by telling investors that “the FSCS are valuing Harlequin investments at 100 per cent of their original value”.