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SIPP and SSAS complaints round-up - winter 2018

We highlight below some recent complaints which have come before the Ombudsmen.

SIPP providers and financial advisors will benefit from reading our insights into how the Ombudsmen approach certain complaints and how best to apply those outcomes to their own businesses.

A SIPP provider may not be held responsible for a third party's term and conditions

Facts and decision

Mr M complained that a SIPP operator delayed the payment of money from his SIPP after the sale of an unregulated overseas investment. He said he did not get his 25% tax free cash or the balance for 10 months after he should have. That money was earning no interest over this time and he could have made use of it sooner.

In November 2015, Mr M requested that the unregulated overseas investment be sold. The terms of the investment however required a 12 month notice period for withdrawals which the investment provider was able to extend further. Although this extension option was requested, the SIPP operator was able to negotiate a reduction. However, it wasn’t until June 2017 that Mr M eventually received payment.

The complaint was not upheld as the SIPP provider had sent instructions to sell the investment to the investment provider on the same day as Mr M had instructed it to do so. As such, the delay was not the fault of the SIPP provider. The delay was caused by the investment provider whose terms the complainant had signed up to.

What does this mean for you?

  • A SIPP provider will not be held responsible for the terms and conditions of a third party but ought to ensure that client's instructions are promptly acted upon.
  • It is worth noting that the FOS found no evidence that the SIPP providers' process was not followed. Providers should ensure adequate processes are in place.

SIPP providers must use all information available to assess a client's attitude to risk

Facts and decision

Mrs W complained that she was provided with unsuitable advice to transfer her pension into a SIPP and invest in high risk funds.

Mrs W approached a SIPP provider with a view to investing in carbon credits and was advised to open a SIPP to facilitate that investment. Mrs W was classified as a capital growth investor, which was the second highest risk category. However, in a separate risk and suitability document she stated a preference for a more cautious approach.

The ombudsman held that from the evidence before him, he was satisfied that it was the SIPP provider who recommended the transfer and investment in high risk funds. He also held that the client should not have been classified as a high risk investor as there was no evidence of previous dealings in such investments including stocks and shares.

What does this mean for you?

  • Even if the client approaches a provider to specifically invest in a particular product, it doesn't absolve the regulated SIPP provider of responsibility to ensure the investment is suitable. Read more on the recent judicial review decision involving Berkeley Burke SIPP Administration Ltd.

Advisors must ensure a pension transfer is suitable for the client

Facts and decision

Mr C complained about the advice he was given by his IFA. He was advised to transfer his pension funds to a SIPP and to invest with a stockbroker using a discretionary fund manager. He felt the advice was unsuitable and the investments made on his behalf were inappropriate.

Mr C was self-employed with gross earnings of £25,000. He had £50,000 on deposit but otherwise his pension plan was the only investment he held. He was also 12 years from retirement. The IFA placed Mr C in an Aggressive Model Portfolio (AMF) concluding that his attitude to risk was "Profile 9" (on a scale of 1 – 10 with 10 being the highest risk category).

The IFA recognised that Mr C's capacity for loss was limited but it still proceeded with an AMF whereby 90% of the assets were in international equities. The complaint was upheld mainly on account of a lack of consideration of other options made available to Mr C to consider. The ombudsman held that had Mr C been suitably advised, he would have transferred his pension into a stakeholder plan and would have invested in a low to medium risk portfolio.

What does this mean for you?

  • An adviser must assess the suitability of a pension transfer in the context of both the client’s existing pension arrangement and attitude to risk based on all the known information.
  • If the specific investment portfolio is not suitable for the client, then the overall pension transfer is likely to be unsuitable and should not be recommended.

An advisor must consider the specific details of a client's pension arrangement before recommending a course of action

Facts and decision

Mr E complained about advice he received from his advisor. He was advised to transfer the benefits from his occupational pension scheme to a SIPP. He was unhappy that his entitlement to higher tax free cash wasn't protected on transfer.

Mr E was a member of an Executive Pension Plan (EPP) which gave him the benefit of a higher tax free cash allowance of 32%, instead of 25%. The advice to Mr E was that he could keep this benefit if there was a bulk transfer but the evidence provided from the trustee of the occupational scheme was that there was never a plan for a bulk transfer.

The complaint was only partly upheld as the transfer to the SIPP met with Mr E's overall objectives. However, the advisor should have done more to ensure that the additional tax free cash allowance was preserved. The advisor insisted that they had relied on information that there would be a bulk transfer and was entitled to take that information at face value. The advisor did however make an offer of 50% of the additional tax liability but this offer was rejected by Mr E. The ombudsman upheld the allowance part of the complaint and agreed the level of compensation at the level previously offered by the advisor.

What does this mean for you?

Financial advisers should consider the features of the proposed transfer in relation to the client’s circumstances when assessing its suitability. There may be very specific criteria which, if not followed, will result in a loss to the client of benefits he/she believes are included.If benefits are lost on account of advisors advice, it is very likely that the advisor will be held accountable for the loss.

Even if the client approaches a provider to specifically invest in a particular product, it doesn't absolve the regulated SIPP provider of responsibility to ensure the investment is suitable. Read more on the recent judicial review decision involving Berkeley Burke SIPP Administration Ltd.

Trustees must ensure they are familiar with the trust deeds and rules and act accordingly

Facts and decision

Mr M’s complaint was that a portfolio of investments in his SSAS was encashed in 2005 without his approval or knowledge. Mr M held the action had caused him financial loss as some of the investments sold had since substantially increased in value.

Mr M had been the sole member of a SSAS. After his company got into financial difficulty, the liquidator, under a Deed of Variation removed Mr M and a second trustee as the trustees of the SSAS. The SSAS included a portfolio of investments which, after the 2001/2 stock market crash, Mr M decided to sit on as he knew the markets usually recovered.

Mr M moved to Spain and apparently sent a fax with his new address which the trustees say they never received. The trustees wrote to an old address on a number of occasions with invoices for payment but these were returned undelivered. As sole trustee, it asked the Eden Group to encash funds to pay the invoices and pay it into the SSAS bank account. Ultimately, all funds within the portfolio of investments were used to pay the trustees fees and in 2017, a bank account was held as the only asset of the SSAS.

This matter was reviewed by an adjudicator and an ombudsman and both refused to uphold the complaint. The trustee had complied with the SSAS' trust deeds and rules and the onus was on Mr M to ensure that the trustee had his current contact details. Ultimately, the ombudsman held that the decision to encash the portfolio of investment was not unreasonable. 

What does this mean for you?

  • It is the responsibility of the individual to ensure the trustee has the correct contact details and method of preferred payment of invoices.
  • Trustees must ensure that they are familiar with the particular trust deeds and rules and act within those rules.

SIPP administrators must ensure that the necessary systems are in place in order to effectively communicate with the client

Facts and decision

Mr M was unhappy with the way his SIPP was administered. Specifically, he was unhappy that the administrator: 

  1. Took money from his SIPP without first telling him the reason why;
  2. Applied non-block insurance policy fees when his tenant was responsible for insuring the property;
  3. Transferred cash held in the SIPP to a bank account with a new provider, which Mr M said put his funds at risk;
  4. Since transferring the funds to the new provider, the previous bank started to apply bank charges;
  5. Applied costs for rent collection and reviews which were unnecessary and intended to generate revenue for themselves to his detriment; and
  6. Mr M has said his administrator's actions caused frustration to his day to day management of the SIPP.

The administrator dealt with points 1 and 2 above by returning the fees but also explained why the insurance was required and that fees would be applied going forward. As such, the ombudsman decided that it could not look at that part of the complaint but as there was a new 2017 charge, he could look into that.

The administrator provided the option for insuring properties in the SIPP under a block policy with an annual fee. Mr M did not require this as his tenant was responsible for insuring the property. The administrator did accept external insurance policies but that was subject to a non-block policy fee due to the administrator having to review the policy to ensure it met with requirements (including whether there was sufficient cover). The ombudsman held this to be reasonable.

In terms of points 3 & 4 above, the ombudsman held that the terms permitted the administrator to open and close the designated cash accounts provided the client was notified prior to switching. The ombudsman was satisfied that a letter sent in February 2017 clearly set out why there was going to be a switch. There were also bank charges but these were on the part of the account provider and nothing to do with the SIPP administrator.

What does this mean for you?

  • SIPP administrators must ensure that the necessary systems are in place to effectively communicate to the client when decisions are being taken. If not, there is a material possibility of a finding against the SIPP administrator in facts similar to these.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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