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.