Why SIPP providers need to be held accountable when their clients are being sold unregulated investments by third party advisors.

Last week (end of October 2021) we have been through the recent FOS decision on the Westerby case. The ombudsman has been thorough in explaining why SIPP providers should not be let off the hook when unregulated advisors essentially use a SIPP vehicle as a cloak of respectability. This can leave the SIPP holder unaware that they have been placed in a vulnerable position – invested in high-risk assets sometimes based in overseas jurisdictions that do not provide the same level of regulation as the UK Financial Conduct Authority (FCA) ensures for UK product sales.

 

In their decision FOS (Financial Ombudsman Service) has done a good job to help close this loop hole.

 

Westerby is a SIPP provider that the Financial Ombudsman has decided was responsible for the bad advice that one of its clients received, even though on the surface it might have seemed that as a SIPP provider they were not directly involved in the sale of the product.

 

An advisor from Abana, a Portuguese firm, had recommended that Mr W transfer out of an occupational pension scheme and place his funds into a SIPP with Westerby. £101,000 of the £108,000 that was transferred into the SIPP was then invested in the Kijani Commodity Fund, which was at the time based in Mauritius (later based in the Cayman Islands), and some in the Swiss Asset Micro Assist Income Fund (“SAMAIF”) also based in Mauritius. The remainder of the money was held as cash or invested in a money market fund. It appears that at a later stage Mr W became an investor in something called the TCA Global Credit Fund.

 

Most of these investments were then suspended with little to no information being available as to what had happened to them, mainly due to the investment platform (through which the Abana advisor had chosen to make the investments) also being suspended.

 

On the SIPP application ABANA was clearly referenced as the advising firm and while they had some regulatory cover within the UK for insurance-based products it was ultimately Westerby’s, the SIPP provider’s, responsibility to properly check out what sort of advice their new client, Mr W, was receiving, and then on that basis decide whether or not to accept the SIPP application.

 

The conclusion of the case is that SIPP providers clearly do have a duty of care to check out who is recommending the investments and if they have the proper authority to give advice on investments. And the burden is on them to reject the SIPP application if there are any uncertainties about the 3rd party’s permissions, as by doing so and then explaining to their client their reasons, the consumer is much less likely to dive into an unsuitable or high-risk product on their own.

 

If you, or anyone in your family, or any friends, or colleagues, have taken out a SIPP their SIPP provider (even if they were not directly recommending or sourcing the investment product) had a responsibility to do their own due diligence on whoever was giving the advice before accepting the application.

 

Even if the adviser was not regulated or may have closed down, we may be able to help obtain compensation from the SIPP provider if they didn’t act correctly. Contact us now by completing the brief form on the right of this article to see how we can help.