The recent Judicial Review’s dismissal of Berkeley Burke’s appeal against a Financial Ombudsman Service decision has only served to heighten my concerns over the lack of transparency as to the nature of investments held in the books of Sipp providers.
The need for in-depth due diligence when selecting a Sipp provider is brought into sharp focus as a result of Justice Jacob’s comments and, notwithstanding Berkeley Burke’s stated intention to appeal, the Financial Conduct Authority has issued another ‘Dear CEO letter’ to all Sipp providers, telling them that they expect each firm to consider the potential implications of the Berkeley Burke case and other civil cases for the firm and its customers.
The FCA rules state that a standard asset must appear on the list of standard assets, and ‘must be capable of being accurately and fairly valued on an ongoing basis and readily realised within 30 days, whenever required’. Everything else is a non-standard investment (NSI).
Everyone reading this article will have a view on clients investing in NSIs, many providers have stopped accepting any NSIs, whereas others will accept some.
What I would like to see is a standardised questionnaire that all Sipp providers have to provide to advisers as part of their due diligence pack.If a provider does accept NSI, then it is really important for the adviser to ensure there is a very robust due diligence process in place before recommending that Sipp [rovider to the client.
While NSIs aren’t for all clients, there are some that wish to invest in them and we need to look at each on merit and in relation to the client’s personal circumstances. There is also a muddying of the water when it comes to fixed term deposits and UK commercial property – many providers consider these non-standard but they are hardly in the same camp as biofuels and burial plots, so I believe should be viewed differently.
The FCA should not in any way be criticised for its focus on NSIs - some consumers have been scammed or led into unsuitable investments. These are most likely to have been through an unregulated adviser, but regardless, getting the best outcome for a client is the most important thing for all of us involved in the sector.
The biggest concern now for advisers is the choice of Sipp provider to partner with, what their exposure to NSIs is and the impact this has on the administration levels and service received which, of course, is vital for clients.
You may wonder why NSIs might impact on service. If a provider has to hold a large percentage of capital aside, due to a high proportion of NSIs, then it is not going to be investing in its business, people or system upgrades and that can only be detrimental to the client and the adviser.
Also, for those Sipp providers with exposure to ‘cause célèbre’ failed investments, much of their time will be taken up dealing with complaints, and this impacts service.
So what I would like to see is a standardised questionnaire that all Sipp providers have to provide to advisers as part of their due diligence pack.
In fact, I think it would probably be 10 questions that are asked but that exclude UK commercial property and fixed term deposits:
1. What percentage of the minimum regulatory capital do you hold?
2. How much of that is in the form of Tier 1 capital?
3. Is your Sipp business subject to any regulatory constraints on the acceptance of new Sipps and/or new investments?
4. Has your policy regarding NSIs changed in the past three years?
5. Do you permit new investment into NSIs?
6. Do you charge separate and/or additional fees in relation to NSIs?
7. What percentage of your Sipps hold NSIs?
8. How many individual NSIs are held within these Sipps?
9. How many NSIs are impaired i.e. suspended, failed or failing?
10. Can you list the NSIs in which you have 10 or more Sipp clients invested?
This list enables advisers to judge each Sipp provider in the same way and I am surprised that no-one has come up with a standardised form as yet.
So I would urge the FCA or the Association of Member-Directed Pension Schemes produce a questionnaire and that the industry provides this information as standard.
In this way, clients and advisers can fully understand the risks taken by their chosen Sipp provider.
James King is managing director of Tavistock Private Client
