These are proving to be difficult times for the reputation of the financial advice profession, and the reputation of the regulator - the Financial Conduct Authority (FCA) - is under parliamentary scrutiny pressure. And questions are also likely to be raised about pension scheme trustees duties of care.
Some financial advisers face questions over their business relationships, advice quality, and remuneration - questions that muddy the water for the countless compliant UK advice firms. The regulator, the FCA, faces questions about how quickly and effectively it acted to protect investors. The Scheme Trustees may yet face questions about their own due diligence and care towards their scheme members.
Most recently, the chair of the UK's parliamentary Work and Pensions Select Committee issued a report alleging that many British Steel Pension transfers retirees were "shamelessly Bamboozled" by advisers'
The issue for the advice profession is complicated - with introducers, Pension transfer suitability, and remuneration all concerned. It begins with their relationship with unregulated introducers - such as Celtic wealth's involvement with Active Wealth - a regulated advice firm that was voluntarily wound up this month. This moves then to the issue of the suitability of a Defined Benefit (DB) or Final Salary (FS) pension transfer, and ends with remuneration - is it commensurate with and appropriate for the work undertaken to provide the advice? Furthermore, some aspects of remuneration for these advisers - known as Contingent Charging - in essence means that the adviser earns more by recommending the transfer, rather than charging for example on a work time basis.
The regulator - the FCA - has had a great deal of experience in investigating pension mis-selling scandals in the past. Even as recently as 2016 and 2017 it was issuing alerts about DB transfer advice suitability and the use of unregulated advisers. It also had knowledge of one of the advice firms at the centre of the scandal, Active wealth (now closed following FCA intervention to stop it providing pension transfer advice), as Active Wealth was run by individuals from another former advice firm, Active Investments - itself closed down because of pension transfer advice complaints.
The scheme trustees have argued that the select committee report's conclusions are "not supported by the evidence." Nonetheless, the report makes challenging reading for the trustees, with MPs claiming that information provided to members contemplating a pension transfer was "woefully inadequate"
One conclusion is clear - Steel workers have been badly served by the some of the advice firms like Active Wealth, the FCA had a great deal of past experience in understanding pension scandals, and the scheme trustees have been sternly criticized. Will this be the last scandal - or will the MPs be listened to?
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You may have read some of the discussion in the press recently about SIPP firms and "due diligence" - but what does it really mean?
Due diligence is generally regarded by dictionaries to mean something along the lines of “reasonable actions taken to avoid danger to others or oneself.” This matters to potential claims clients who are concerned about their SIPP investments.
There may well be concerns over transfers introduced by unregulated firms, and also when transfers take place into unregulated assets – that is when SIPP firms may well be challenged over a failure of due diligence.
Historically, in respect of a SIPP, the advice firm or financial adviser - as the provider of the advice to invest - was generally regarded as the only point at which a failure of due diligence might be deemed to be actionable. However, since the "pensions freedoms", many people have been persuaded - often by offshore cold callers - to invest into unregulated assets within SIPP wrappers.
Where a pension transfer has taken place from a pension scheme, into an unregulated underlying asset within a SIPP, this raises a number of due diligence concerns. And it's not simply about potential failures by the SIPP firm.
Firstly, the ceding pension scheme: did the trustees obtain the correct assurances from their administrators in respect of the proposed transfer: was a suitably qualified IFA involved in the advice process (ie. a G60 qualified adviser for DB transfers); and secondly, was the receiving scheme properly authorised by HMRC to accept such a transfer?
Secondly, the advice firm (where involved): did they have access to the proper qualifications and permissions to advise upon such a transfer? Importantly, did the intended SIPP, and underlying asset, meet the client's stated attitude to risk at the time of transfer?
Finally, the SIPP administration firm: the main danger is in respect of unregulated introducers – often based offshore, and unregulated underlying assets. Where no UK regulated, and suitably qualified adviser has been involved, the SIPP company faces a real challenge. In the absence of such advice, has the SIPP firm conducted appropriate due diligence on any proposed unregulated underlying asset. Where an unregulated introducer has been involved, in the absence of a UK regulated adviser – has the SIPP company conducted appropriate due diligence re the appropriateness of the proposed transfer on behalf of their client?
This could prove to be a genuine challenge if any form of “marketing” or other relationship exists between the SIPP firm and the unregulated introducer – especially if that relationship has not been disclosed to the client.
The FSCS, following their decision to place three SIPP firms in default (Stadia Trustees, Brooklands Trustees, and Montpelier Pension Administration Services) has made it clear that evidence of failure of due diligence by these firms will lead to compensation payouts. The FOS has also adopted a stance that essentially concurs with the FSCS' position.
*Catch up with the latest stories on this subject at CityWire http://citywire.co.uk/new-model-adviser/news/fscs-ruling-could-put-sipp-providers-out-of-business-amps-warns/a1086176?