Professional negligence

SIPPs are so 2014, what you need is a QROPS…
13 April, 2018

By some considered unexciting, the world of pensions has been commanding attention as scammers continue to plague the industry, misleading savers and leaving people with little or nothing for their retirement.

Until around 2014, the vehicle of choice for dubious unregulated pension investments such as offshore property developments (Harlequin springs to mind), truffle trees and green oil investments were self-invested personal pensions (‘SIPPs’).

From as long ago as 2011, the regulator repeatedly warned SIPP operators that they needed to be careful about high risk esoteric investments being held in their SIPPs, particularly if the investor was unsophisticated and ostensibly not in receipt of advice from a regulated adviser.   

In its ‘Dear CEO’ letter in 2014, the FCA made it clear that SIPP operators must undertake adequate due diligence processes on high-risk, speculative and nonstandard investments in these five key areas:

  • correctly establishing and understanding the nature of an investment;
  • ensuring that an investment is genuine and not a scam, or linked to fraudulent activity, money-laundering or pensions liberation;
  • ensuring that an investment is safe/secure (meaning that custody of assets is through a reputable arrangement, and any contractual agreements are correctly drawn-up and legally enforceable);
  • ensuring that an investment can be independently valued, both at point of purchase and subsequently; and
  • ensuring that an investment is not impaired (for example that previous investors have received income if expected, or that any investment providers are credit worthy etc.).

In light of the stricter regulatory environment surrounding SIPPs, anyone promoting a dodgy unregulated investment needed to look elsewhere for a vehicle.

‘QROPS’ is the acronym for ‘qualifying recognised overseas pension scheme’. As the name indicates, QROPS are ‘recognised’ by the UK Revenue and are eligible for transfers to and from UK registered pension schemes.  QROPS are useful for individuals living (or in the process of moving) abroad because there are tax benefits.  However the regulators in other jurisdictions such as Malta, Gibraltar and the Isle of Man have not been as proactive as the UK regulator in this area, meaning that some QROPS operators have been slow to introduce safeguards. 

QROPS can be utilised as a vehicle for unsuspecting investors to be sold high risk pension investments that would no longer be accepted by SIPP operators in the UK, as they would not pass the due diligence checks.  It is understood that QROPS are currently the main source of pension scams.

Unregulated advisers promote transfers from UK pension schemes into QROPS, claiming relaxed rules abroad will provide more flexibility for accessing pension savings. The 2017 budget restricted the tax relief on moving pensions into QROPS, imposing a 25% tax on most transfers.  Tax free transfers are now limited to those meeting strict criteria, all of which require conditions to be met alongside a genuine reason for the transfer; genuine reasons include living in the country the QROPS is in, or your employer’s pension scheme contributing to a QROPS etc. (full list of criteria here).

Only by taking advice from a high quality financial adviser will you know whether you can transfer your pension without incurring the 25% tax penalty. Any adviser making unsolicited approaches should be viewed with high caution, especially if they offer free advice. Further measures to safeguard against scams include checking an adviser is on the FCA’s register of regulated advisers (giving you recourse and compensation via the financial ombudsman and financial services compensation scheme if something goes wrong) and checking any suggested QROPS fund is on the HMRC list of recognised overseas pension schemes.

If you require advice on the above, please contact Pradeep Oliver on 01892 765 453 or at

Don’t blame me, I only sold the packaging…I’m not responsible for what’s inside.
11 April, 2018

Pension transfer advice must be provided by a financial adviser with the appropriate FCA permissions. In certain instances, financial advisers have been prepared to advise a client to transfer out of

their occupational or personal pension schemes and into a self-invested personal pension scheme (SIPP) even though advice on the investments to be held in the SIPP has been provided by other (often unregulated) parties. The adviser has sought to limit liability by attempting to restrict the scope of the advice to the suitability of the SIPP and excluding the investments that are to be held in the SIPP. 

The financial ombudsman has recently ordered Kingsway Wealth Management to compensate a client who, following advice from the firm, transferred his pension into a SIPP. This pension pot was then invested in Cyprus One Limited which was involved in Cyprus residential development.

The ombudsman decision was based on an alert published by the then Financial Services Authority (‘FSA’ (now Financial Conduct Authority)) which states:

“The FSA’s view is that the provision of suitable advice generally requires…consideration of the suitability of the overall proposition, that is, the wrapper and the expected underlying investments in unregulated schemes.  It should be particularly clear to financial advisers that, where a customer seeks advice on a pension transfer in implementing a wider investment strategy, the advice on the pension transfer must take account of the overall investment strategy the customer is contemplating… This is because if you give regulated advice and the recommendation will enable investment in unregulated items you cannot separate out the unregulated elements from the regulated elements.” (Full alert here)

Kingsway’s defence was that it had not known about the investments within the SIPP wrapper and, as a result, it were not responsible for the unsuitable investment the SIPP contained. The FSA alert in 2013 clearly states this is not the case; any advice to invest in a SIPP automatically extends a responsibility for the products in which the SIPP is subsequently invested.  While Kingsway’s advice in this case was provided in 2009, before this alert was publicised, in an email to Kingsway in 2008, the FSA stated “in our view, it is difficult to separate advice on the merits of joining a SIPP from the merits of particular investment assets to be held under that SIPP compared to the funds and benefits from the ceding scheme”.

This decision from the ombudsman makes absolute sense, a SIPP is nothing more than a tax efficient pension wrapper, an adviser cannot possibly assess whether the SIPP in itself is suitable for a client without considering the investments held within it.


Advice or guidance? It’s all the same isn’t it?
9 April, 2018

Deciding how, where and when to invest money (or an asset such as a pension) is complicated, especially for those not immersed in the financial services industry. There are myriad products and countless

‘experts’ keen to assist, making a veritable minefield of financial products and investments with no sure map to the other side.

For this reason we turn to industry professionals for help (advice and guidance), only to learn that there is yet another confusing differentiation: receiving advice and receiving guidance are different things! In February 2018 the Financial Conduct Authority published information about the difference between advice and guidance. The FCA notes:

“…term ‘advice’ to mean a recommendation of what you should do…personal to you. It will be based on your specific circumstances and your financial objectives. Only a firm that is authorised by us can provide this kind of advice”. You can see if someone is authorised on the FCA website here.

“Guidance is a much broader term and includes more general information about financial products…will not recommend a specific course of action to you or give a personal recommendation about how you should invest.”

Overall, the key difference is advice should only be given by those on the FCA’s approved list  and it will be detailed, specific to you and will take into account your attitude to risk and your base knowledge of the sector.  Guidance can be given by anyone; it is likely to be broad and applicable to the general public rather than tailored to an individual. It is also often free. Conversely, it is rare to find free advice so if you do, be on alert.

The benefit of an authorised adviser is that the advice is more likely to be in accordance with the regulatory rules and therefore suitable for your purposes. If the advice  turns out to unsuitable you may have recourse through the financial ombudsman (who can order the regulated adviser to pay compensation) or, if the adviser has disappeared or gone bust, through the financial services compensation scheme.

Cyber fraud – beware of lazy Friday afternoons!
6 March, 2018

Cyber fraud in conveyancing transactions comprised 75% of cybercrime reported to the Solicitors Regulation Authority (SRA) in 2016. This type of cyber crime has been named ‘Friday afternoon fraud’ as the fraudsters frequently target property transactions, many of which complete before the weekend.

Hackers have become skilled at monitoring online behaviour which can enable them to identify particular individuals and their solicitors who are in the process of buying or selling property.  Confidential information, including bank details, is often transmitted online and can be intercepted and modified redirecting money transfers to the criminals’ accounts, then redirecting on, making it hard to trace.

Another concern is identity fraud.  In 2016 the Court concluded an identity fraud case involving a law firm; an imposter sold a house which they did not own, and the law firm paid a client’s money to the fraudster before the scam was recognised.

The Law Society and the SRA have been active in issuing warnings and guidance to solicitors involved in high risk areas, such as conveyancing, since 2014. The risks are evolving and require continual awareness on the part of firms.  

While there is no perfect protection, my view is that solicitor firms will have to demonstrate that they have robust systems to protect their clients’ assets (including personal data) against cyber fraud in order to comply with solicitors’ Code of Conduct. 

As a minimum, and based on the guidance issued by the Law Society and SRA, I would expect firms to:

  1. Provide clients with warnings about common types of cyber fraud;
  2. Provide bank details to clients in a secure manner at the beginning of a transaction;
  3. Highlight to clients that email is not secure for transmitting bank details and that bank details will not change during a transaction. Consider adding a paragraph about this to client emails;
  4. If bank details are sent electronically, before any transfers confirm the details by another means (e.g. a telephone call to a known number);
  5. Everyone at a firm should be alert to methods used by fraudsters and the firm should ensure technology safeguards against cybercrime are up to date;

If you require advice relating to the above please contact Pradeep Oliver on 01892 765 453 or

FCA concerns over lifeboat fund’s messaging and pension compensation
17 January, 2018

The Financial Services Compensation Scheme (FSCS) provides compensation when certain financial products fail or default.  Some pensions are protected by the FSCS, including annuities and drawdown schemes. The Financial Conduct Authority (FCA) oversees the FSCS.  The FCA’s October board minutes confirm its continued support of the scheme but highlight concerns regarding FSCS funding, messaging and consumer understanding of protection when pension products fail.

It is possible to invest all (or part) of a pension in an annuity product, a life insurance policy which guarantees a fixed (can be linked to inflation) taxable income for either a set number of years, or for life.  Another option is to invest in a ‘drawdown product’; the pension is invested in funds which are managed to produce an income for retirement – the income will depend on the fund’s performance and is not guaranteed for life.  Drawdown products are higher risk and therefore less expensive than annuities.  With flexibility to change pension arrangements, increasing numbers are moving to personal drawdown pensions rather than annuities; not all understand that in the event of pension products failing, the FSCS offers 100% uncapped compensation for failed annuities whereas compensation for drawdown products’ is capped at £50,000.

The FCA is considering increasing the cap for drawdown products, moving towards harmonising compensation which could simplify understanding of compensation implications when changing pension arrangements.

Consumer messaging regarding pension products is something the FCA values; the difference between products (and related costs) which guarantee income and those which do not should be more effectively conveyed to consumers. Another aspect of pension related messaging which the FCA aims to improve is ensuring consumers understand changes can occur during a product’s lifespan which modify its position and value.

Finally, methods by which to increase FSCS funding were explored, including a focus on professional indemnity insurance and increasing contributions from advisers’ bills. The FCA reasoned the latter may also ‘incentivise providers to create products which are better understood and benefit consumers more’.




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