Will the Adams vs Carey case be the point at which SIPP clients are absolved of all responsibilities for the decisions they make? Wendy Poynton looks at the seismic court ruling and assesses possible future tremors.
From the moment Self Invested Personal Pensions (SIPPs) fell under the remit of the then Financial Services Authority, they have been on a one-way journey to being anything but self-invested. If we trace SIPPs back to their roots, we see a sophisticated pension option for those looking to seize control of how their money was invested. To a degree, their relative complexity, compared with say, the standard off-the-shelf Personal Pension, provided a healthy degree of self-regulation. Companies establishing SIPPs tended not to market them to the masses.
A fast and bumpy ride, that I don’t think anyone in the industry has enjoyed, has brought us all to a point where the once reassuringly well-defined lines between provision and operation of a SIPP, and the advice to join one and where to invest, have become blurred to the point that no one really knows where they are anymore, or even if they are there at all.
This creep of the responsibility of advice, not away from advisers, but rather reaching further out to envelop SIPP Operators, has been an issue in the industry for some time, but recent events are crystallising matters and taking things much further. This topic is, of course, broad and multifaceted. However, it is perhaps best encapsulated by the recent Adams v Carey case, at the Court of Appeal, which may now move onto the Supreme Court, if Carey is given leave to appeal. We can zoom in a little closer still and focus on something the judge said during the appeal case. Something that may set the tone for the foreseeable future and, more urgently, may have been the liberal application of grease to the floodgates.
“Consumers should be protected against their own folly”
– The judge at the Adams vs Carey case
The judge said this; “Consumers should be protected against their own folly”. To borrow some non-compliance terminology, that is a potential game changer. For one thing, Claims Management Companies are already advertising for clients invested through SIPPs to explore the opportunities for claims of mis-selling.
We don’t necessarily disagree with the judge, after all, despite being watered down over the years, SIPPs can still be a heady brew, and clients can’t be expected to become pensions experts. It ought not be unreasonable for consumers to expect those permitted to dispense advice, to do so with their client’s best interests foremost in their mind. But, such sentiments could well pave the way for a slew of new claims with varying degrees of credibility, and that’s only going to be compounded by the ambulance chasers. However, the fact remains that SIPP Operators are not advisers.
In light of this hostile and fluid situation, how can any SIPP Operator now do anything other than tighten its already firm grip on which investments it permits in a SIPP? Furthermore, how secure can any SIPP Operator feel even after doing that? Also, what are the implications for commercial viability when SIPP Operators start rejecting huge swathes of investments, including those which, on the face of it, meet the definition of a standard investment? Not because they are the kind of thing that probably ought to at least raise an eyebrow, as some may argue is the case with Adams Vs Carey, but just because no one is going to have any kind of appetite for anything but the blandest of standard investments. However, even then, such a ruling could leave a SIPP Operator exposed, should that ultra-safe investment merely not perform to the standard desired by the client.
If you are one of our valued introducers reading this, you may already have felt the impact of this court ruling through our dealings with you and your clients. As a responsible SIPP Operator, we will always pay close attention to which way the regulatory wind is blowing and make the necessary changes to our systems and protocols. One related change we’ve needed to make recently is around the status of a client if they are being advised by an overseas adviser. Such clients now need to be deemed to be unadvised. In addition to this, if the firm giving advice is not regulated by the FCA, then in the eyes of the FCA, that firm is an unregulated introducer. It doesn’t matter whether they are regulated in their own jurisdiction. These issues compound the burden of increasing responsibility on the part of SIPP Operators, for where and how a client decides to invest their pension fund.
In other words, while the ability to distance ourselves from the advice process has been greatly eroded, there would normally be a recognised adviser in play to help ensure there
is an audit trail of advice, and issuing of appropriate risk warnings, prior to us receiving the instruction to make the investment. Now, where a client’s adviser is outside of FCA jurisdiction, their involvement in the advice process will simply not be recognised and the full burden of any kind of appropriate testing, will fall to us. It therefore follows, that so will any subsequent need to provide compensation, in the event of an upheld complaint.
Because of this, we are making necessary changes to our Investment Form, which clients need to complete, and we will be rolling out a new investment policy, which will provide guidance to advisers, and their clients, on the type of investments we will consider. In addition, there will also be a new declaration of understanding which will need to be completed each time a client invests in a structured product. All investments remain at our ultimate discretion, even if the investment meets the definition of a standard investment.
Thankfully, we run a highly compliant operation and invest huge amounts of time and effort on making sure we’re always doing what is right and what is expected of us. We will continue to assess all investment proposals, whether for new or existing clients, with an open mind. Giving us as much advanced notice of the investment as is possible, will certainly help us to manage expectations and limit last minute rejections, but aside from that, and at least until things become clearer, we have no choice but to further tighten our due diligence criteria.