Self-invested personal pension (Sipp) provider Carey Pensions is facing claims worth up to £3m in what could mark a watershed moment in the way Sipp claims are handled.
The firm stands accused of working with unregulated introducers to facilitate investments in Store First storage pods, which were unsuitable and are now deemed "worthless".
A client, who invested his £60,000 pension in the illiquid commercial property, is due to appear in the High Court on 19 March for a four-day trial against the firm, which will act as a test case for about 90 more clients with liabilities of £3m.
Tim Hampson, associate solicitor at Wixted & Co solicitors, which is bringing the claim, said the case could act as a precedent to other claims against Sipp providers, such as the group litigation against Berkeley Burke, which is due to enter the courts in the coming months.
The claimant accuses Carey of failing in three ways: breaching Section 27 of the Financial Service and Markets Act 2000 by establishing a Sipp after an unregulated third-party firm advised on the transfer for the sole purpose of investing in the storage pods; breaching the FCA COBS rules that dictate a firm must act in the client’s best interest; and operating a joint enterprise with an unregulated introducer.
Mr Hampson said: "What we hope the court will determine at trial is what the appropriate standard is in respect of the level of due diligence a Sipp operator must undertake before accepting applications from unregulated introducers and requests to make unregulated investments from clients who have not sought independent financial advice from a regulated IFA."
Wixted alleges the investment was sold through unregulated introducer CLP brokers, which operated from Spain and is linked to Terence Wright, a former adviser who the regulator warned about in 2010 for "providing financial services or products in the UK without our authorisation."
But Careys also distributed products through TPS Land and Jackson Francis, the lawyers said.
The case comes at a turning point in respect of the regulatory approach to handling such claims.
Up until recently claims where no regulated advice was involved did not fare well with the Financial Ombudsman Service (Fos) or the Financial Services Compensation Service (FSCS), which considered many such claims to be outside their remit.
But in January the FSCS declared it was accepting claims in relation to three Sipp firms, which had accepted unregulated investments through unregulated introducers, for the first time.
The FCA has also started to adopt this approach according to a lawyer, who told FTAdviser in December the regulator was increasingly clamping down on firms operating at the margins of regulated activity that it believes pose a serious risk to consumers.
Mattioli Woods said there was a sense the three regulatory bodies had finally come to an agreement on how to deal with such cases.
Mark Smith, chief operating officer at the firm, said: "[We believe there is going to be] an increase in complaints and failures in the Sipp market.
"There are many that have interacted in this way and some are still operating."
Mr Smith said the ruling could transform the way future claims are handled because of its argument that a firm cannot exclude a client from any liability it may have under the regulatory system.
He said: "The potential consequences of the judge ruling against Carey Pensions is that the interpretation could be much wider and question would need to be asked of Sipp operators on how they believe they could continue to accept execution only basis of any kind and not carry the liability if anything goes wrong."
Carey Pensions' chief executive, Christine Hallett, declined to comment.
The firm recently regrouped its 'bad book' of Sipps into one trust, but denied speculation the business could be up for a sale.
Ms Hallett told FTAdviser at the time: "Sipps that are invested in distressed assets have to be administered in a very specific way so the decision was purely for operational reasons."
carmen.reichman@ft.com
