Advisers will now have to foot the claims bill for Berkeley Burke after part of the business went into administration.
Berkeley Burke Sipp Administration Limited was put into administration yesterday (September 19) after it could no longer afford to defend redress claims made against it.
Immediately after being appointed, administrators RSM announced the self-invested personal pensions arm of the business would be sold out of administration in a pre-pack deal with Hartley Pensions.
No other companies within the Berkeley Burke group are affected.
The Financial Services Compensation Scheme has now said it is accepting claims against Berkeley Burke, meaning that ultimately it will be advisers who will end up footing the bill for successful claims as the body is funded by a levy paid by the industry.
Although it was expected, advisers were frustrated by this outcome with some saying that it has become too easy to pass on liabilities to the FSCS.
Alan Chan, director and chartered financial planner at IFS Wealth & Pensions, said this situation was happening more frequently with good advisers having to deal with the consequences.
Mr Chan said: "Unfortunately we see this happening far too often and it’s just too easy to pass the buck onto the FSCS.
"Sipps and unregulated investments have been right at the centre of many scams over the years.
"This leaves the good guys to be in the unfortunate position of having to pick up the FSCS tab which is increasing to unsustainable levels.
"For us, the FSCS component dwarfs all of the other regulatory levies as it alone represents two-thirds of our overall bill. What’s worse is that I get the feeling this is just the tip of the iceberg and the worst is yet to come."
Martin Tilley, pensions director at Hurley Partners, said: “It’s not the outcome anybody wanted, not least the contributors to the FSCS on whom the burden for this will fall. It was inevitable once the claims floodgates opened.”
Berkeley Burke is currently embroiled in a case from 2014, in which the Financial Ombudsman Service ruled it had to compensate a client after it failed to carry out adviser-style due diligence on his investment.
The outcome of this case is still unknown as a two-day appeal hearing was scheduled for next month.
Mr Tilley said that this leaves the industry in limbo about the level of due diligence Sipp providers need to carry out on investments.
He said: "Whilst the circumstances of the Berkeley Burke case are unique, we are still in limbo with the outcome of the Carey court case. There is still deliberation over the level of due diligence which was deemed as necessary and suitable and the degree to which this responsibility lies on Sipp providers.
"A clear definition is needed between investments that were scams and those on which an asset has genuinely been acquired, which has simply not performed in line with expectations."
Greg Kingston, communications director at Curtis Banks, said that if the court case does not go ahead following the administration, it will be a missed opportunity.
Mr Kingston said: “It now appears less likely that the appeal will proceed. From the perspective of clarity I think that some Sipp operators – indeed platforms too - will see that as an opportunity missed.
“Some statements from the regulator in earlier hearings,effectively trying to retrospectively re-write their requirements, were likely to be challenged in this appeal.”
Tom Selby, senior analyst at AJ Bell, expects there will be similar cases to Berkeley Burke in the future.
Mr Selby said: “It is never good news when a Sipp provider enters administration and the most important thing now is those members affected are transitioned smoothly at what will inevitably be a very worrying time.
“Berkeley Burke isn’t the first Sipp firm to face financial difficulties and I’m sure it won’t be the last.
“This just rams home the importance of advisers doing due diligence on the provider they choose for clients, as ideally you want the firm to still be there throughout their retirement and beyond.”
amy.austin@ft.com
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