All is not well in the world of SIPP arrangements and accountants have a serious and significant role to play in alerting clients to potential problems, writes Adam Tavener.
About a year ago, in an interview with Money Marketing, I suggested that all was not well in the world of SIPP providers and that many, even some of the very large ones, were staring down the barrel of a gun entirely due to earlier behaviours. This claim was greeted with some scepticism at the time, particularly by those involved in the business of providing or advising on self-invested pensions.
Fast forward a year and the cat is definitely on its way out of the bag, based on recent press coverage and a court ruling. So, what’s gone on, what is the likely outcome, and what can be done about it?
The back story is, predictably, one of greed winning out over common sense. Years ago many well-known SIPP providers were pretty cavalier about the type of assets that they would accept onto their books, undertaking only the most cursory checks and focussing only on the suitability of the investment from an HMRC point of view. The prevailing belief was that, since the SIPP provider had not advised the customer with respect to the investment, they had no liability for the outcome.
Not surprisingly this became a scammer’s paradise, and dodgy schemes surfaced all over the place. Costa Rican rainforest bioenergy, Cape Verde off-plan hotel rooms, storage units, you name it, they appeared. Driven by greed, unscrupulous ‘advisers’ would persuade credulous members of the public to transfer their pensions into a SIPP and instruct the SIPP provider to make the investment which, more often than not, turned out to be a dud, often returning a zero value.
The scale of this was huge and it took the regulator quite a long time to figure out what was going on and what to do about it. By the time anything was done the horse had well and truly bolted.
When angry and fleeced punters went looking for someone to blame, they often found that the original ‘adviser’ had disappeared so went further down the chain and came knocking on the door of the SIPP providers in question. In pretty much every case the answer they got was ‘not our problem, we didn’t advise on the investment, sorry.’ And thus, the drawbridge was pulled up and SIPP providers were able to keep hold of the profits they had made from all this whilst avoiding taking any pain.
Or so they thought. A decision by the Financial Ombudsman, subsequently upheld by a court hearing, changed everything. This decision held that SIPP providers did actually have a duty of care to investors and should have conducted suitable due diligence, and were thus liable for the (massive) losses incurred in this scandal. That really did put the cat amongst the pigeons and the sound of drawbridges coming crashing down again echoed across the industry.
For a while, everything seemed pretty quiet. We do know, however, that where there is a miss-selling scandal there is profit to be made and now, ominously, claims chasers are beginning to switch their attention from the dwindling PPI seam to the almost pristine goldfields of SIPP claims. Indeed, one or two smaller players have already gone under, but that really is just the start. Watch this space.
There is a serious and significant role for accountants to play in all this. Clients will often ask for advice regarding their pension, and particularly SIPP arrangements, and it is imperative to be alert to these potential problems. Accountants do know how to do due diligence properly, but I would suggest that where you have clients with a SIPP arrangement you should ask the question regarding their provider's potential liabilities with respect to historical UCIS type investments.
There is a compelling reason to check this now. Although the collapse of a SIPP provider should not lead to any direct financial loss for the investor it can lead to an effective freezing of the account and, if recent examples are anything to go by, a significant restriction on transactions within the scheme. This is all time and cost to your client and, in every case, best avoided.
It is also important not to be bamboozled by stated financial strength. A SIPP provider with 50,000 customers may well have an impressive balance sheet, but that could also be masking an undisclosed potential liability fifty times greater than a provider with only a thousand such schemes. Again, asking the right question is crucial.
There are, of course, many excellent non-standard investments. Indeed, I would argue that this is the reason for holding a SIPP in the first place, but, as trusted advisers, accountants can play a significant role in helping their clients avoid a whole lot of pain by asking, or encouraging the client to ask, the right question. What’s lurking there in your back book of business?
About Adam Tavener
Adam is founder and chairman of Clifton Asset Management Plc, the innovators behind the designated business funding comparison platform Alternative Business Funding, providing high quality finance to SMEs across the UK. Adam hosts ‘Tav on Money’ a regular series of video opinions on YouTube.’