Sipp provider Dentons Pension Management has warned a case currently going through the courts could have profound effects on the Sipp market and lead to providers winding up their operations.
Rival 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 currently at the High Court for a hearing against the firm, which will act as a test case for about 90 more clients with liabilities of £3m.
Speaking at Dentons' annual event in London today (21 March) Denton's director of technical services, Martin Tilley, said a ruling against Carey Pensions - which is expected imminently - could rattle the market and see a number of organised wind-ups.
He said: "The worry we have is if the Sipp provider is found against this is going to have a profound impact on the Sipp marketplace.
"Because depending upon how the Sipp providers' professional indemnity insurance stacks up and their capital adequacy situation, we could well see some organised wind-ups going on.
"This case is quite critical, if it goes the wrong way we could see significantly fewer full Sipp providers in the marketplace than we currently have."
Mr Tilley told attendees checking the quality of providers' asset acceptance was critical when carrying out due diligence on Sipp providers, including historic policies as well as those inherent in any firms acquired.
Assets like Harlequin, Elysian Fuels and Store First should ring alarm bells, because of the latest court cases and HM Revenue & Customs action against them, he said.
The case against Carey also 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.