Earlier this month self-invested personal pension provider Hartley Pensions entered administration.
To protect Hartley’s clients, the Financial Conduct Authority had previously subjected them to a number of FCA requirements due to "serious operational, financial and regulatory issues". It is crucial that thought is given to the lessons that can be learned to prevent this kind of injustice from happening in the future.
Unfortunately, Hartley is not the first Sipp company to go into administration as there have been many others before it – and I doubt it will be the last. I have been a solicitor for more than 40 years and the nature of my work centres on people who have been mis-sold Sipps, often exiting very lucrative defined benefit schemes, resulting in the loss of their pension.
It is important to recognise that these observations do not emanate solely from the Hartley situation alone, but this example should be used as an opportunity to draw attention to the issues within the wider market.
Over the recent past, we have seen a number of semi-large secondary Sipp providers like Berkeley Burke, Guinness Mahon, Liberty Sipp, Corporate & Professional, and Brooklands enter into administration. All of the above companies were vying for a share of what can only be considered a modest percentage of the overall pension industry in the form of Sipps.
In their haste to get ahead and corner the market, all of the above Sipp companies agreed to accept business from anybody, even non-regulated advisers or offshore advisers without UK authorisation, and accept almost any kind of investment company within the Sipp wrapper.
This created, in effect, a joint enterprise between the introducer of the business (whether FCA regulated or not), the Sipp company and the investment company. An example of this would be the arrangement that existed between Liberty Sipp Ltd, Avacade Ltd and Ethical Forestry.
Avacade, who were not authorised by the FCA, would regularly cold call individuals to establish whether they would be agreeable to undertaking a 'free' pension review. On the review, Avacade would conduct a fact-find of sorts and then give unauthorised and therefore illegal financial advice.
Predominantly, the advice that they would give would result in the victim opening a Sipp with Liberty Sipp, transferring their existing pension to this Sipp, and thereafter 'investing' in a plantation of Melina trees in Costa Rica, which was offered by Ethical Forestry Ltd.
Under the terms of this joint enterprise, Avacade would benefit financially because they would receive overly generous commissions for the introduction of the business from Ethical Forestry Ltd. Liberty Sipp Ltd would benefit because they would gain a client and be able to charge a set-up charge for the Sipp and an annual management charge. Ethical Forestry Ltd would benefit in terms of its sales.