SIPP misselling claims

We are seeing an increasing number of claims being made by investors for losses they have suffered from investments in self-invested personal pensions (“SIPPs”). 

A SIPP is a form of pension in which an individual can decide which investments their funds should be invested in.  However, this may lead to a risk that investors will lose their pension funds as a result of investing in risky or unsuitable investments.  It is now possible to invest SIPP funds in almost any type of investment other than tangible investments such as wine or horses and residential property.  However, we have seen examples of individuals investing in high risk commercial property and foreign exchange products and suffering losses as a result.

Claims which SIPP investors may be able to consider include:

Advice on switching to a SIPP

The investor may have received poor advice in relation to transferring their pension from a conventional pension scheme to a SIPP.  That advice may have come from the investor’s previous pension provider, the SIPP provider or an independent financial adviser (“IFA”).  If the advice was negligent or in breach of Financial Conduct Authority (“FCA”) rules, the investor may be able to claim for losses suffered as a result of that advice.

The FCA has made it clear that even if an IFA limited its advice to pension transfer advice and excluded investment advice, the pension transfer advice must also include an assessment of the underlying investment.

Unauthorised investment advice

Section 19 of the Financial Services and Markets Act 2000 (“FSMA”) prohibits unauthorised persons from carrying on regulated investment activities (including advising on and managing investments).  If, for example, a SIPP investor has received advice from someone who does not have the necessary authorisation, a contract entered into by the investor with the unauthorised person may be unenforceable.  In that case, the investor may be able to recover any losses.

Unauthorised financial promotions

Section 21 of FSMA prohibits anyone who does not have FCA authorisation from communicating an invitation or inducement to engage in investment activity (a “financial promotion”) to a client.  The effect is that any contract entered into by the investor as a result of an unauthorised financial promotion may be unenforceable.

Breach of statutory duty

Even if a financial promotion comes from an authorised person, it must comply with the FCA rules.  For example, the FCA’s Conduct of Business Sourcebook (“COBS”) rules include provisions that any communication with a client must be “clear, fair and not misleading”. 

In addition, COBS rules require investment firms to ensure that recommended investments are suitable for retail clients and that firms act in the best interests of their clients.

Individuals are given the right by section 138D of FSMA to sue firms who are in breach of their statutory duty under the COBS rules.  

Common law claim

In addition to making claims under FSMA, investors may be able to sue investment firms under the common law for losses they have suffered.  These claims may include negligent misrepresentation or negligent management of the investments.

Financial Ombudsman Service (“FOS”)

It is possible that a complaint could be made to the FOS for claims of up to £150,000.  The FOS has recently reported a big increase in complaints it has received in relation to SIPPs.

Financial Services Compensation Scheme (“FSCS”)

If an FCA-regulated firm becomes insolvent, a compensation claim can be made to the FSCS.  The maximum amount of compensation available is £50,000.  In February 2015, the FSCS announced that it was now willing to provide compensation, not only for losses suffered as a result of poor advice relating to the transfer of pension funds into a SIPP, but also for investment losses. 

Additional information