Financial advisers who recommended clients switch their pensions into self-invested schemes heavily exposed to investments being marketed by embattled overseas property group Harlequin are legally liable for losses, the Financial Services Compensation Scheme confirmed.
In an update, the FSCS said it is now in a position to start compensating claimants for losses in the value of a range of esoteric investments held in Sipps, as well as compensating for lost pension growth and charges.
This will mean compensation being paid out in relation to failed adviser firms, drawing from the compensation scheme’s investment intermediation sub-class, which is funded by adviser levies.
The scheme said it will consider claims for investment losses resulting from the advice given by firms to switch to a Sipp exposed to three investment schemes: Harlequin Hotels and Resorts, Green Oil Plantations, and Sustainable Agroenergy.
FTAdviser revealed in January that the scheme is paying interim compensation for Sipp switching claims to compensate consumers for lost pension growth and charges taken from their Sipps, but at that time it was not paying out on investments losses.
It also said a review was still underway into whether advisers would have been liable for any losses sustained on the underlying properties. This was complicated by the fact the properties are based outside of the UK.
As with all investment claims, compensation is subject to the payout limit of £50,000.
The FSCS’ update added that it has been issuing decisions on Sipp related claims against IFAs that are no longer trading since September 2014, in relation to advice given to transfer funds from existing pension schemes to Sipps.
In many cases, the Sipp fund was then invested in non-standard asset classes, many of which have become illiquid.
Harlequin’s UK sales arm has been placed into liquidation, though this is separate from the offshore property development arm Harlequin Hotels and Properties. Projects have been beset by delays and there have been legal wrangles with customers wanting their investment returned.
Three directors were jailed for their part in a £23m biofuel fraud related to Sustainable Agroenergy. The Serious Fraud Office’s criminal investigation focused on the selling and promotion of investment products based on “green biofuel” Jatropha tree plantations in Cambodia.
FTAdviser also previously revealed the compensation scheme was valuing investments held in Harlequin at 100 per cent for the purposes of compensation, though this was being challenged.
Law firm Regulatory Legal said 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 found that the Lifetime Sipp Company wrote to investors telling them that the value of their investments has been written down to a nominal £1.
The FSCS said in a statement it is now “satisfied” that advisers “may be legally liable” for losses on these investments.