Pensions Ombudsman finds SIPP provider not responsible for suitability of investment

The Pensions Ombudsman has found in favour of SIPP provider Berkeley Burke SIPP Administration Limited in a complaint by a member whose investment in an unregulated investment scheme had failed.

20 October 2015

The Pensions Ombudsman has dismissed a complaint by a member against Berkeley Burke SIPP Administration Limited, after the member’s investment in an unregulated collective investment scheme failed. The Ombudsman found that the SIPP provider had complied with its obligations at the time, and had clearly warned the member of the potential risks involved in the investment.

On 4 September 2009, the FSA published the findings of its thematic review of how small SIPP operators were complying with the FSA’s principles and rules. This report included a recommendation that SIPP operators should monitor and take responsibility for the quality and type of business they had been introduced to, as well as bearing some responsibility for compliance aspects of individual SIPP advice.

In December 2011, Berkeley Burke SIPP Administration Limited received the member’s application to establish a SIPP to invest £40,000 in Green Oil Plantations, an unregulated collective investment scheme (UCIS). This indicated that the member had received investment advice from The Affinity Partnership Limited, a firm whose letterhead stated that they were regulated by the FSA. Berkeley Burke’s reply to the member, Mr Goodwin, included the following statement:

“For the avoidance of doubt, acceptance of an investment by us in a SIPP does not mean we endorse the investment, nor its suitability to meet your own financial objectives or investment risk profile. The responsibility for assessing the ‘suitability’ of any investment within your SIPP rests with you and your professional advisers. If you have any doubts about the investment options proposed, you should seek advice from a suitably authorised and qualified adviser. Berkeley Burke SIPP Administration Limited are not authorised to provide financial advice.”

The letter also contained various warnings including that the investment might be illiquid, that the investment would not be covered by any UK financial services compensation scheme, and that the investment was unregulated. Shortly afterwards, on Mr Goodwin’s instructions, Berkeley Burke opened the SIPP and invested £40,000 into Green Oil Plantations. Two years later, however, Green Oil Plantations went into administration and Mr Goodwin’s investment was lost. He complained to the Pensions Ombudsman that Berkeley Burke had failed in its duty of care to him and did not carry out proper due diligence relating to his investment.

The questions for the Ombudsman were whether or not it was maladministration for Berkeley Burke to have made the investment available under the SIPP and whether it had fulfilled its duties as SIPP administrator and trustee.

The Ombudsman concluded that Berkeley Burke’s duty as administrator was confined to considering whether the investment was within the list permitted by HMRC. The statutory duty of care under section 1 of the Trustee Act 2000 did not apply to the SIPP trustee because it was clear under the SIPP contract that investments would be selected by the member and would not be a decision of the trustee.

The Ombudsman’s view was that the recommendations of the FSA’s thematic review were “aimed at ensuring providers put in place certain controls and systems designed to flag potential instances of unsuitable or poor investment advice”.  He concluded that there were no wider investment due diligence duties which applied to Berkeley Burke under FSA regulation and the checks it carried out were sufficient to meet the FSA’s requirements at the time.  The investment was permitted by HMRC to be held within a SIPP and Berkeley Burke had also provided Mr Goodwin with clear warnings.

Finally the Ombudsman confirmed that he cannot judge previous conduct by reference to subsequent guidance (the complaint predated the more recent FCA guidance).  

The decision follows an earlier Pensions Ombudsman determination in another complaint against Berkeley Burke arising from similar facts.  The Ombudsman’s decision that the duty of care under Section 1 of the Trustee Act 2000 did not apply in relation to selection of SIPP investments by the member will be of comfort to SIPP trustees.

The Pensions Ombudsman's determination can be found here.