2013/14 was an extremely busy year for the Financial Ombudsman Services (FOS) handling 2.3 million queries in the 12 months to April this year. Of those queries, 512,167 were settled of which 58% were resolved in favour of the consumer.
One of the main areas that stood out in these results was the number of complaints filed in relation to a self-invested personal pension (SIPP). We previously highlighted the spike in complaints seen in Q4 2013, and it seems the trend has continued. The FOS heard 1,039 complaints regarding SIPPs, up from the previous 12 month period of 697 queries. Three quarters of the SIPP complaints were from investors that had been advised to invest into unregulated collective investment schemes (UCIS).
The Regulator
The issues surrounding UCIS are not new to the financial regulator. The Financial Services Authority (FSA) issued a warning early last year to advisers who were recommending the investment first, then introducing the SIPP as a way to make the client liquid and invest in the asset. Advisers were also introducing SIPPs to their clients without properly examining the appropriateness of the proposed investments to be held in the new pension plan. UCIS are generally considered to be high risk investments and in some cases detailed due diligence on the underlying assets is not carried out.
In January the FSA took a step further to warn against a specific unregulated investment – Harlequin Property, a UK based developer of Caribbean resorts. The alert stated: “If a financial adviser recommends a SIPP knowing that the customer will sell current investments to invest in an overseas property, then just how suitable the overseas property investment is must form part of the advice given to the customer.” This announcement resulted in a massive narrowing of distribution channels for unregulated investments and all but closed off the SIPP sales route.
In June the FSAs predecessor, the Financial Conduct Authority (FCA), published their policy paper (PS13/03). The policy prohibits the promotion and sale of several assets, UCIS included, to ordinary retail investors. The policy took effect on 1st January this year limiting UCIS and NMPI to sophisticated and HNW investors only. A number of advisers have since been fined due to UCIS mis-selling.
There is also likely to be further narrowing of the SIPP market this year and the FCA may even go as far as to restrict some SIPP operators’ ability to access risky investments. Proposed changes to increase the minimum amount of capital an operator must hold, charge fees for holding ‘non-standard assets’ and ensure that any standard asset must be capable of being accurately valued on a continual basis will also be implemented later this year and will dramatically affect firms operating in the market. It is likely to be the small firms or those that are over exposed to non-mainstream investments that will suffer most.
Conclusion
The official results from the FOS have not yet been published and it will be interesting to see what impact PS13/03 has had on the number of complaints since January this year. During 2013 we began to see the SIPP and UCIS markets narrow and will be interesting to see how this market develops over the coming months.