So you’ve got clients sitting with old Personal Pension Plans (or even new ones) or they are using another SIPP provider and you have been tasked with reviewing their plans to see what they should have versus what they do have right now….. 

You’ve gathered all your data (to know your client) you’ve ascertained that the client wants flexibility, investment choice and other things (DFMs anyone?!) and after you’ve reviewed in detail their existing plans, you decide that with research a SIPP can meet their objectives….so you use something to look at the SIPP providers to see who might offer what your client needs (unless you’re tied to one firm then it’s a simpler research phase for you) 

It's easy to recommend a SIPP, right? 

Not so fast there! 

If the last 10 years has taught us anything, it is that a SIPP can’t be a one size fits all or a silver bullet to pension problems….. 

SIPPS are by their nature complicated animals, think of the name, “Self-Invested” this implies that your client can invest into anything (Lamborghini anyone!) but as we all know it means that they can potentially invest into any permitted investment (there goes the time share in Spain!) They were designed to do just that, give much wider investment powers to clients. Sadly they never seem to be used for that purpose, I rarely see anyone investing into Commercial Property or direct equities or Warrants….(except Accountancy or Law Firms for Equity partners, they still seem to use them this way and well done to them!) 

Instead I see almost every client using a SIPP,  pre-retirement, for investing with a DFM or a Managed Portfolio often with very small funds, this is of course extremely disappointing to someone like me.(My DB background screams out, “use it properly, please!”) 

The fact is advisers recommend SIPPs as a blanket solution for getting funds under management and I have made my peace with that (well sort of) 

So I turned instead to the quality of SIPPs available and whether it was still “safe” to be selling, sorry, recommending SIPPS……. What the headline of this article refers to is the AgroEnergy case, if you’re not familiar with it allow me to recap the main bits for you here: 

A gardener, Wayne Charlton, invested £24,000 of a pension pot into Sustainable AgroEnergy, this was a scheme that said it invested into land in Cambodia used to grow biofuel and that there were even insurance policies in place to protect investors if the crops failed. The reality was that this just was not the case, there was no land owned, no trees planted to produce biofuel and no insurance protection for crop failure! About 250 victims of modest means were defrauded out of a total of about £1.36million, all invested through a SIPP. (Because a SIPP could) The 3 main people involved in the fraud were all sentenced to prison terms in a case brought by the Serious Fraud Office (SFO) It then started the FOS process for many people that had felt that they may have been defrauded out of pension savings, plus it rang (for some at least) alarm bells in the wider SIPP market. In Wayne Charlton’s case he had made his investment through an unregulated introducer and had to go direct to the SIPP provider, Berkeley Burke. 

FOS ruled that the SIPP provider had failed to carry out any diligence on the investment prior to facilitating it and that they considered such action as good industry practice. The SIPP provider launched an appeal and both elements of the appeal were dismissed after 4 years of back and forth. The main crux of the appeal seems to be that the provider claimed that FOS was holding it to standards not expected of it by the FCA……the judge thought otherwise. 

This prompted the FCA to write to all SIPP providers to warn them that they needed to consider the impact of this ruling. (Dear CEO letter) https://citywire.co.uk/new-model-adviser/news/fca-quizzes-sipp-firms-over-insolvency-plans-after-dear-ceo-letter/a1172909?section=new-model-adviser 

It didn’t help that this year three SIPP providers, Stadia Trustees, Brooklands Trustees and Montpellier Pension Administration, were declared in default by the FSCS and that the number of complaints brought against SIPP providers are significant and in the words of the FSCS, only set to increase and you only have to do any Google search using “SIPP” and guess who appear at the top????? Claims Management Companies! So you don’t need to be a genius to realise that we can now expect a raft of SIPP complaints and especially where unregulated introducers were concerned: https://citywire.co.uk/new-model-adviser/news/sipp-firm-carey-pensions-faces-legal-claim-over-unregulated-introducers/a1094311?section=new-model-adviser add to this the decision by the FCSC to accept claims from customers against SIPP providers for due diligence failings and I can see which way the wind is blowing. 

SIPPs are an easy target in some respects, they can often be expensive and complicated and misunderstood by customers (Though I have to wonder how much of this misunderstanding is through poor advisory practice?) but for the right people, as with every solution in Financial Services, they can work just fine. The SIPP industry has tried in some respects to play down this situation and dismiss often the case as not being about the SIPP rather the differences between the provider’s view and FOS, allow me to cut through this please….This is silly in my opinion. 

The fact is that the SIPPs that have less than robust diligence and scrutiny and expose themselves and their customers to potential and unwarranted risk, are ripe for claims against them, it is that simple. It is possible to dress this up a little and say that the FCA rules are being adhered to but so many catastrophic failings in history were by people who were “just following orders” and this reminds me of the film partnership nightmare of some years ago, when people would use phrases such as “never been challenged”, “never had any complaints” etc just because the FCA’s rules don’t say you can’t do something, does not mean that you can. Common sense, ethics (I know scary word sometimes) and plain decency need to come back into Financial Services in some cases, there are too many complaints brought about our industry over things that in my opinion could be avoided. 

A SIPP needs to be many things I feel, reputable (with evidence to prove this) reliable, accommodating (no investment restrictions please) with excellent oversight and governance, charged appropriately (no hidden nasties or exit penalties) and be transparent. If it can be these things and let’s face it they all need to be, then a SIPP should have no worries in reality. As soon as a SIPP starts to move into “grey areas” or becomes lax in its diligence and risk assessments, then it starts to be open to abuse and therefore open to scrutiny and litigation (the word that we now all know but 25 years ago most had no idea what it meant!) 

Look, it doesn’t matter for an adviser if they are ethical and squeaky clean, if the vehicle that they use is suspect or open to a challenge of the nature of AgroEnergy, it won’t matter what you did or advised you will be exposed to the same risks in the eyes of your clients and the wider industry by association! (I agree that this may not be fair but as a pragmatist I accept the reality of the world as it really is) look at industry in general…..how many times do companies stop doing something or trading somewhere pending the outcome of something? Look at BREXIT and how many firms deferred decisions or actions until they knew what the risks were? 

How many advisers and clients suffered with the £350 million failure of ArchCru? When that was marketed so many people felt it was fantastic and totally legitimate and why not invest into it? Now look at the situation with it…..disaster! 

What we don’t need is for the SIPP market to do either of the following things: 

1. Stop taking business at all to avoid any and all risks (then we are left with just the big SIPPS and they control the market)
2. Keep taking monies for investments without adequate and robust scrutiny and then the whole market is closed down by regulators. 

What I think we need is not difficult at all, we need all the SIPP providers and the advisers that funnel money into them to start taking diligence/oversight/governance really seriously! If as an adviser you only use the big SIPP providers (the ones that will take governance and risk very seriously anyway) then I think that the industry risks are small, as we all know the “hoops” that large providers make you jump through are often detailed and many but what they can deliver is oversight and ultimately protection of a sort for your clients and you. 

It is the smaller, boutique SIPPs that I personally feel present the greatest risk to consumers and advisers too, the ones that seek funds under administration/management above all else and it is these I feel are where the greatest risk of further AgroEnergy failings are present but it doesn’t have to be that way I assure you. Here’s the thing, if you want to use small SIPPs there is nothing wrong with them in general, many are I am sure, are good quality and offer flexibility that some of the larger ones don’t wish to but it is their inherent desire to be flexible and to “please” that can lead to risk for you as the adviser. 

Ask yourself, is there anything about this SIPP that should concern me? Not just about its charges or its admin but what it lets people invest in and also are there any negative news articles or FOS complaints about them. This last one is key I feel and every adviser that uses a SIPP regularly should be looking out for any potential risks like this. Why would you continue to put client monies into something that was the source of 500 potential FOS cases? 

Worse still, how can you consider investing your clients money into something that is associated with a Serious Fraud Office Investigation?

The answer here should be "No of course I would not advise a client to invest into a SIPP that may have issues like this" (correct answer IFA!) I will carry out some diligence on the SIPP to judge for myself whether the risks to my client and me are justified. If your advice can stand up to a reasonable level of scrutiny then I feel you can use any provider you wish, the key here is risk management! 

So should you all stop using SIPPs? Don't be silly, of course not. They can be the right tool for a client, what you must do is proper research and checking to make sure that it is right and does not carry any additional, undue risk to either your client or you....not that hard really!