Regulation  

Ombudsmen continue to be at odds over Sipp due diligence

Ombudsmen continue to be at odds over Sipp due diligence

The Pensions Ombudsman has backed a self-invested pension provider over alleged due diligence failings, in a ruling contradicting a final decision made by the Financial Ombudsman Service.

Last year, Berkeley Berke lost a case with the Financial Ombudsman Service over an unregulated investment in a landmark ruling that some interpreted as meaning Sipp operators would need to undertake adviser-style due diligence.

The Fos later U-turned when further evidence came to light and it is still reviewing the decision afresh.

Fos’s original decision, which was published on its online database but was later removed, ruled the firm had failed to carry out adequate due diligence by allowing a consumer to invest £24,195 in Green Oil Plantations in 2011 and £58,500 in Harlequin.

However, the latest decision by the Pensions Ombudsman has a differing view.

Anthony Arter has not upheld a complaint made by Robert Goodwin who said that Berkeley Burke failed in its duty of care by failing to carry out proper due diligence on his Green Oil Plantations investment. A similar decision was published earlier this year, which also backed Berkeley Burke.

Mr Goodwin opened his Sipp in 2011, however two years later Green Oil Plantations went into administration, and Mr Goodwin says he lost his £40,000 investment as a result of this.

Mr Arter said that the heart of the decision is what obligations a Sipp trustee and administrator has to consumers. The concept of a ‘statutory duty of care’ is defined in the Trustee Act 2000. By virtue of the act, all trusts now have wide investment powers and there is a also a new statutory duty of care to sit alongside common law trustee duties and responsibilities.

However, Mr Arter ruled that the ‘statutory duty of care’ does not apply to Berkeley Burke because the selection of investments held “is not a decision of the administrator” as investments are selected by the members.

He also said that Berkeley Burke’s responsibility as an administrator is to consider whether or not an investment falls within the list permitted by HM Revenue and Customs.

The decision read: “The fact a specific type of investment is available to invest in a Sipp does not confer any suitability on the investment itself.”

When Mr Goodwin opened his Sipp, he was sent a letter by Berkeley Burke which said that the responsibility for assessing the suitability of Sipp investments rests with him and his professional adviser, adding that it was not authorised to provide financial advice.

Mr Goodwin was also warned that the investment was unregulated.

Due to this letter, Mr Arter found that “sufficient warnings” were given.

He added that the “basic checks” carried out by Berkeley Burke met the regulator’s and HMRC’s requirements for such investments “at that time”.

In 2008, the Financial Services Authority published a thematic review into Sipps which put into place increased focus on ‘treating customers fairly’.