Ombudsman stands firm on Sipp due diligence

Ombudsman stands firm on Sipp due diligence

The Pensions Ombudsman has cemented its position Sipp providers should not be expected to carry out comprehensive due diligence on pension investments, finding in favour of Stadia Trustees in a complaint.

Ombudsman Anthony Arter ruled against a complaint lodged by ‘Mr N’, deciding it was not Stadia’s role to undertake the level of due diligence suggested.

Mr Arter’s position in this case reflects his previous ruling in a complaint against Berkeley Burke where he also ruled it was not the Sipp provider’s responsibility to conduct extensive investigations into the suitability of investments.

The Berkely Berke ruling has proven contentious because the Financial Ombudsman Service has taken exactly the opposite view, ruling against the Sipp provider for not carrying out enough due diligence - a position Fos is now reviewing.

In the ruling against Mr N, who invested his Sipp in African Land through Stadia, Mr Arter said he did not find the company set aside its professional duty to its client by carrying out insufficient due diligence.

He said: “In this instance I am satisfied that Stadia had provided Mr N with sufficient warning of the risks, and the option of a more diverse portfolio had been raised, and yet he continued with the investment.

“In considering whether there was maladministration I have to consider Stadia’s legal obligations to Mr N, and whether they acted consistently with good industry practice.

“The limit of Stadia’s responsibility as administrator is to consider whether or not an investment falls within the list permitted by HMRC. Whilst they can choose not to allow an investment even if it is permitted by HMRC, there is no requirement on them to do so.”

Mr N completely the application to establish the Sipp in April 2012 and confirmed at the time that he had not sought or received financial advice.

In July 2012 he completed a member investment instruction form, opting for what he acknowledged was a non-regulated investment of £144,000 in Australian Carbon Credits and £3,900 in African Land.

According to Mr Arter’s ruling, Mr N later claimed he did not fully understand the documents he was signing due to his lack of financial knowledge.

Mr Arter said: “Whilst I acknowledge that this may be true to an extent, the numerous warnings issued by Stadia were clear and, at the very least, should have alerted Mr N to consider obtaining financial advice were he in any doubt as to the wisdom of his investment selection.

“I am satisfied that the basic checks which Stadia undertook, and the warnings they gave, were sufficient to meet the requirements imposed on them by the regulator and HMRC for such investments at that time.”