Beware of unauthorised introducers

  • Explain some of the dangers of using unregulated introducers
  • Identify how regulated entities should treat unregulated introducers
  • Explain why many Sipps have failed
Beware of unauthorised introducers

The use of unauthorised introducers of business to regulated entities has long been a grey, sometimes murky area.

Many have believed the relationships between unauthorised introducers and regulated entities often led to confusion and mis-information being passed onto the consumer at the very outset of the contemplated transaction.

The Sipp industry has been no exception to these relationships. Unauthorised introducers have often liaised directly with a consumer about the transfer of assets in the consumer’s pension into exotic or high risk investments, regularly receiving a substantial commission if an investment was made, before passing the consumer to a regulated body to undertake regulated activities.

Some Sipp providers appeared not to appreciate, or perhaps turned a blind eye to the risks of using unauthorised introducers. This is, in fact, a very risky proposition and there are real and very substantial risks of accepting business through an unauthorised introducer if the consumer’s transaction turns into a failed investment. 

A very recent example of this is the Court of Appeal decision in the case of Adams v Carey Sipp. Handed down on 1 April 2021, all Sipp providers and other regulated entities who enter into regulated transactions with consumers through introductions ought to take very careful note of this decision.

By way of general background to this case, in recent years the Sipp market has suffered a number of setbacks resulting in the insolvency of many Sipp providers and losses to the consumer who entered into various investments within the Sipp wrapper.

High risk investments in land or other foreign investments were sometimes targeted at the consumer by regulated Independent Financial Advisers and unauthorised introducers.

When these high-risk investments failed, there was a flood of Financial Ombudsman Services complaints and Financial Services Compensation Scheme  claims made. These were generally made against the IFA who advised or the Sipp provider itself with many upheld and resulting in costly payouts.

Among these complaints Mr Adams launched High Court proceedings against Carey Sipp on a number of grounds including the fact that an unauthorised introducer had been heavily involved in the creation of his Sipp and investments within the Sipp.

Unauthorised introducers and the SIPP provider

Many Sipp providers were content to accept an introduction from an unauthorised introducer on the basis that the Sipp provider was not liable for any investment advice relating to the product, and the Sipp itself was simply a wrapper for the consumer to select investments on their own or with the aid of an IFA.

Some Sipp providers appeared to take this a step further and were content to accept volume introductions from the same unauthorised introducers with very active relationships.

In this situation, where there had been no independent advice from an IFA and the unauthorised introducer had either gone bankrupt or disappeared; disgruntled investors then made various complaints against the Sipp provider in order to seek to recoup heavy losses from the investments in the Sipp wrapper. Many Sipp providers did not seem to appreciate the possibility that this may occur.