Over the last year the Financial Services Compensation Scheme (FSCS) has paid more than £105m in self-invested personal pension (SIPP) claims in 2016/17 – an increase of 35% on the previous year.
The FSCS confirmed that the increase was due to failed advice from firms that transferred savers out of occupational schemes into risky SIPP investments.
The FSCS recorded a total of 3,565 clients that were “wrongly advised” to shift their retirement from occupational schemes into risky assets held within SIPPs in 2016-17. It said: “Their riskiness means some investments inevitably fail and become illiquid. This trend began two years ago and has continued this year, with claims
against an increasing number of failed life and pensions advisers.”
There has been a myriad of esoteric, speculative and illiquid investments marketed to ordinary retail customers as suitable pension investments over the last few years. The list is endless, but has included exotic property developments, ostrich farms, green oil, diamond trading, carbon credits and storage pods.
Typically, these investments are promoted by unregulated firms who utilise the services of regulated financial advisers to provide the investment with a veneer of legitimacy for both the client and the SIPP operator.
Most IFAs would not touch these investments with a bargepole; however, other firms have put the pursuit of profit above the needs of their financially unsophisticated clients. By the time the investments have failed, the advisory firm has closed down without any insurance to meet its liabilities.
Even though the amount of compensation paid out by the FSCS is an eye-wateringly large figure, the position is far from satisfactory for clients or advisory firms. There is a distinct feeling of injustice on both sides.
The amount lost by the victims of poor advice is bound to be far more than the compensation reported by the FSCS. Whatever the value of the lost pension fund, each complainant is limited to a maximum award of just £50,000.
Similarly, it is the “good” advisory firms that are punished by being forced to pick up the tab due to the ever increasing FSCS levies.
The only winners are the snake oil salesman, who have long disappeared into the sunset contemplating the next “fantastic investment opportunity”.
The solution is not an easy one, perhaps compulsory run off insurance is an option. In the short term this would lead to an increase in insurance premiums across the sector, however over time premiums would fall for the advisers who had a demonstrable low complaints record.
Insurers would also be forced to take a more active role in assisting firms to manage risk rather than simply collecting premiums and then being able to wash their hands of a firm that has been forced into liquidation as a consequence of its poor practices and leaving the FSCS to foot the bill.
If you have suffered losses as a consequence of defective financial advice or services please contact Pradeep Oliver at firstname.lastname@example.org or call 01892 765453 for a no obligation consultation.