Unregulated relationships should make Sipp firms nervous after Carey

Tom Selby

Tom Selby

The Court of Appeal ruling that Carey Pensions, now known as Options, should repay an investor who lost out as a result of a storage pod investment facilitated by the self-invested personal pension administrator led many to conclude this could be a sea change moment for the wider financial services industry. 

In reality, this decision should only impact those Sipp providers who have, or have previously had, a direct relationship with unregulated introducers. 

The case centres on the relationship Carey – which marketed itself as an execution-only Sipp provider – had with CLP Brokers, an unregulated introducer based in Spain.

In particular, the court considered whether clients referred to Carey to invest their pensions in storage pods in Blackburn by CLP were in fact receiving financial advice.

If this were the case, CLP would have been in breach of the general prohibition set out in the Financial Services and Markets Act 2000. This is designed to prevent someone carrying out a regulated activity unless they are authorised or exempt.

While the original High Court ruling found in favour of Carey, the Court of Appeal judge overturned this opinion in deciding that CLP provided regulated advice and so breached the general prohibition. 

This, combined with the relationship between Carey and CLP, were the key factors in the judge ruling the client, Russell Adams, was entitled to be put back in the financial position he would have been had he not made the investment.

In the Court of Appeal ruling, the judge said CLP’s recommendation of a storage pod investment to Adams “carried with it advice that he transfer out of his Friends Life policy and put the money into a Carey Sipp”.

The judge continued: “Investment in store pods may have been the ultimate objective, but it was to be gained by transferring out of the Friends Life policy and into a Carey Sipp. CLP thus proposed that Adams undertake those transactions too and, in so doing, gave ‘advice on the merits’ of selling a ‘particular investment which is a security’ (viz. the Friends Life policy) and buying another ‘particular investment which is a security’ (viz. a Carey Sipp).” 

The scale of business accepted by Carey via CLP was significant, with some 580 of the company's clients invested in storage pods. This represented about 10 per cent of all the assets held by Carey and “nearly 30 per cent” of the company's income in 2012, according to court documents.

The ruling suggests “most” of Carey’s storage pod clients were introduced by CLP, with average investments of around £50,000. In short, a liability of somewhere approaching £29m if all those clients decided they wanted their money back. CLP typically received a commission of between 2 per cent and 5 per cent for introducing the business to Carey.

Based on the facts of the ruling – which could still be appealed at the Supreme Court – any Sipp company that has entered into similar unregulated introducer relationships will be nervously reviewing their back book of business and any potential redress that could be due.