Advisers are becoming increasingly cautious in dealings with the self-invested personal pension (Sipp) market and are shunning firms that can’t prove an unblemished track record, FTAdviser has found.
A number of providers have had their hands dirtied by allowing unregulated non-standard investments which later failed in their Sipps, losing investors millions.
Last week FTAdviser revealed Sipp provider Lifetime Sipp was forced to enter administration as past exposure to the likes of failed overseas property investment Harlequin came home to roost.
Since many of those investments were made, the market has faced a period of increased scrutiny from the regulator, including tough new capital adequacy rules for Sipp providers holding non-standard assets.
This has meant some providers, such as Liberty Sipp and James Hay, stopped accepting those investments altogether.
James Hay's parent company IFG is currently embroiled in a battle with HMRC over legacy non-standard investments in which some of James Hay's clients invested, mainly a structured bio-fuels investment known as Elysian Fuels.
James Hay estimated in an update to the market in January that the maximum potential sanction charge for the overall 2011-2015 period when it allowed Elysian would be about £20m, assuming all Elysian Fuels shares are deemed valueless at inception.
Similarly Liberty has suffered a difficult few months as a result of some of the more unusual investments it allowed onto its platform. named
In November a BBC Radio programme alleged the provider had allowed millions of pounds of pension money to enter its Sipps to be invested in Gravity Childcare, a company now in liquidation, which has been accused of recklessly mismanaging pensioner money, accusations it has denied.
Liberty Sipp also has investors holding money in Ethical Forestry Ltd, which is being investigated by the Serious Fraud Office and, according to Companies House, is in liquidation.
Liberty Sipp denies any wrongdoing in both cases and said it has now reduced its exposure to bad apple investments to 4 per cent of its book.
Figures published recently by the provider suggested advisers continue to support the firm, with its rate of Sipp openings has doubled in the 12 months to April following a surge in recommendations from some 730 advisers.
But advisers FTAdviser spoke to appeared very concerned by what could be lurking within Sipp providers' client portfolios.
Darren Cooke, Chartered Financial Planner at Red Circle Financial Planning, said he would not touch firms with a tarnished back book as the risk of a backlash from claims was too great.
He said: “I do very little business with Sipp providers as I don't really see much point unless you are going to use it to hold commercial property.
“The Sipp provider I do use has no exposure to non-standard assets, never has never will. I would not use a Sipp provider that has in the past exposed itself to that risk.”
Al Rush, principal at Rutland-based Echelon Wealthcare, who is involved in helping steelworkers embroiled in the British Steel Pension Scheme debacle, including with concerns some have transferred their pensions into unsuitable Sipp arrangements, said: “The default setting has to be ‘why’, and not ‘why not’ [for Sipps].”
“I look for justification first and foremost, and then, if the case merits it, which Sipps stack up.”
He also felt there was no justification for doing business with a tarnished firm: “Firstly, because I don’t need to. Secondly, why would I.”
Dave Penny, managing director at Invest Southwest, said he was not wary of the market but any provider he deals with needs to evidence a “long unblemished track record of propriety”.
He said: "If the clients’ needs point towards a Sipp, which is relatively unusual, we recommend one.
“I cannot think of any circumstance in which I would put a client with any provider of regulated financial products which has had some dodgy investments on their books in the past."
Mr Cooke said he was wary of a case currently in the High Court, which if successful could “open the floodgates” against other Sipp providers.
In the case, which concluded on 23 March and is currently awaiting judgement, provider Carey Pensions stands accused of breaching regulatory rules by allowing a client to open a Sipp on recommendation from an unregulated introducer for the purpose of investing in unregulated storage pods.
The client argues the firm has not acted in his best interest but Careys says he requested the business on an execution only basis and was warned about the risks involved.
Mr Cooke said: “If [Carey] are held liable for that it will finish most Sipp companies.”
Sipp provider Dentons Pension Management, which does allow non-standard assets, takes a similar view on the state of the market.
Its director of technical services, Martin Tilley, said the judgement could spell an onset of claims against Sipp operators who ran similar processes.
He said: “A plethora of complaints could have serious implication for a provider and this in turn could lead at the very least to administrative difficulties if not financial compensation.
“If the Sipp provider is not financially strong enough to absorb the claims process and remain trading, administration, a sale of the book or an organised wind up of the business could be triggered, which of course could have implications for all clients of that provider and also the advisers.”
carmen.reichman@ft.com
