Why the actions of a few mean it’s time to rebuild the SIPP’s reputation
It’s fair to say that SIPPs have had a rough ride in recent years. There have been plenty of negative headlines and news stories, mainly thanks to a high number of investments which have failed, gone bust or are illiquid.
Even just carrying out a simple Google search for ‘SIPP’ this morning returns headlines such as ‘Troubled SIPP sold for £482k’ and ‘SIPP claims drive increase in new FSCS levy’.
Sadly, it’s the actions of a few that have tarnished the image of the sector as a whole. So, is it time to rebuild the SIPP’s reputation?
Some of the recent stories
For those of us who have been in this sector for a long time, it’s frustrating to keep seeing negative stories. Even just in recent years, we’ve seen a number of high-profile cases.
Harlequin property scheme
In June 2019, GPC SIPP entered insolvency after fighting claims made against it for the Harlequin property scheme.
It was reported that GPC had 2,700 SIPPs that held investments in the property scheme, all placed between 2009 and 2012. Harlequin took around £400m in investments to develop Caribbean villas, although the villas were never built, and the investment is now worthless.
As of June 2019, the Financial Services Compensation Scheme had paid £95m in compensation to clients who held these unregulated assets in a GPC SIPP.
Cases such as this have also resulted in claims against the SIPP providers in question. The claim is that SIPP providers should carry thorough due diligence on the investments it makes on behalf of clients.
Read more about the GPC case here.
As well as GPC, the SIPP arm of Berkeley Burke went into administration in late 2019, as a result of trying to contest the claims against them. The FSCS said that the company entered administration ‘because it can no longer afford to defend redress claims made against it. Those claims relate to the acceptance of high-risk non-standard investments into its non-advised SIPPs between 2010 and 2012.’
Read more about the Berkeley Burke case here.
In a case similar to Berkeley Burke, a client of Carey Pensions also took his SIPP provider to court.
The case concerns an investment into an unregulated collective investment scheme called Store First.
The client claims that he had been mis-sold the SIPP and the investment, did not know the levels of risk he was taking, and that Carey Pensions should have carried out further due diligence on the investment.
Read more about the Carey Pensions case here.
2016 rules are helping to give confidence to advisers and clients
One of the common themes running through a lot of these well-publicised cases is that it is claimed that the SIPP provider should have carried out due diligence on any investments.
In 2016 the FCA introduced new rules for SIPP providers regarding the amount of capital adequacy they need to retain. These rules also defined how a SIPP provider should classify investments; either as ‘standard’ or ‘non-standard’.
- Standard assets – bank deposits, UK and overseas shares on a recognised exchange, investment trusts, UK regulated collective investment schemes, National Savings, gold bullion, UK commercial property and generally any investment that can be realised within 30 days
- Non-standard assets – UCIS, overseas property, hedge funds, unquoted shares and anything else that is not on the published ‘Standard Assets’ list
The capital adequacy rules were not only based on the value of assets held by a provider within their Scheme. There was also a requirement for keeping additional capital aside for each client that held a non-standard asset.
There is still a place for non-standard investments within SIPPs, so long as these are carried out after a thorough assessment of both the investment and the client wishing to make it.
For example, types of non-standard investments that IPM is still asked to consider include:
- Funds that have dealing dates in excess of monthly (such as hedge funds)
- Certain funds that are not FCA regulated but may be regulated by an overseas equivalent
- Cash accounts with a notice period of in excess of 30 days which cannot be broken
The number of clients IPM has with non-standard investments, the number of these types of investments we are making and the number of requests we are receiving to make these have decreased year-on-year since 2016.
Going forward, these new rules should give confidence to advisers and clients that firms should be well capitalised as well as having robust procedures in place for investments that fall into the ‘non-standard’ category.
IPM has never invested in any of the well-publicised investments which other SIPP providers have undertaken, nor have we entered relationships with any unregulated third parties to introduce SIPP business to us.
We can also boast a strong capital adequacy position, holding in excess of 180% of our FCA requirements in cash within our company.
Rebuilding the reputation
While the failure of several firms and these high-profile cases have highlighted some poor practices within the SIPP sector, there are many businesses out there operating to high standards of ethics and due diligence.
Firms like ours not only have a strong capital adequacy position, but also undertake a thorough assessment of any non-standard investments we’re asked to make.
What this means is that, in time, the SIPP sector will be left with good quality specialist firms who operate to a high level of professionalism. We fully intend to be one of them!
Get in touch
If you want to have a chat about the potential of SIPPs for your clients, or any other aspects of pension planning, please contact us. Email firstname.lastname@example.org or call 01438 747 151.