SIPP complaints to the Financial Ombudsman recently faced a sharp increase. Why did this happen? Fiona Murphy reports.
Complaints about self-invested personal pensions (SIPPs) soared by 123% over a quarter, the latest figures from the Financial Ombudsman (FOS) recently revealed. In the three months to December 2013, the number of SIPP complaints jumped from 176 in Q3 2013 to 393 in Q4 2013.
A Freedom of Information request also shows that the number of resolved SIPP cases during 2013 spiked in this period. In Q1 2013, there were 130 resolved cases, 96 in Q2 and 132 in Q3 – but this jumped to 267 in Q4, more than double any of the previous figures.
So, what caused such a significant change in this quarter alone? Is it an anomaly or is there something larger happening within the industry driving the number of complaints?
An FOS spokesperson says: "In SIPPs, it is around the products people are investing in. Most are around UCIS (unregulated collective investment schemes) – inevitably some fail, so we receive complaints around the advice to invest in those products. Our data, generally speaking, has been half and half in areas where there has been a claims management interest.
"We received a number of complaints from Regulatory Legal. The increase in complaints was about 200+ complaints in that period. Looking at the data, roughly half of complaints received in those period was from Regulatory Legal."
Suffolk Life head of marketing and proposition Greg Kingston says: "Based on our own experiences – and this is limited as we have seen only a couple of instances – we are starting to see a rise in claims management companies where they are very clearly handling complaints on behalf of the investor.
"I do not know whether that will result in more complaints as we have seen that with payment protection insurance. Whether it will result in more successful outcomes for customers, I can't tell."
"Another thing likely to drive complaints is the investments as the underlying cause, such as unregulated investments. I'm talking about UCIS, such as Harlequin Investments.
"The investment is the trigger to make the complaint. So the question is whether the complaint is about the SIPP or the investment; or whether the investment is held in the SIPP, in which case they will be caught up together."
The great majority of complaints to the Ombudsman lay at the feet of UCIS. Of course, there were a number of high-profile failures of these investments within SIPPs over the past year – Harlequin Investments is one notable example.
Regulatory Legal director Gareth Fatchett says: "We have got plenty of claims through Harlequin, Sustainable Growth Group and Ark LLP. There have been a few investments that have gone wrong and where the money had been generated through pension investments. We have lodged a lot of claims recently.
"There was a shift from about 2009, with people investing into esoteric and unregulated investments. Most of those investments were a mess; the clients have realised the advice was bad and have instructed firms such as us to get their money back through a claim in relation to the unsuitability of pension transfer."
But if it is the case that investments are the primary cause of SIPP complaints, does this mean providers are off the hook? Not so, if we look at FCA guidance from the past year.
Kingston says: "The provider cannot take a simple position of 'We're a bare trustee and it's not our responsibility'. That's not the case anymore. But there is always going to be a grey area, where there are advised clients.
"There are two elements in terms of both the initial advice and sale, and the ongoing management of the SIPP, so providers do have a duty of care."
Neil MacGillivray, chairman of the Association of Member Directed Pension Schemes (AMPS), says he has been "concerned" by some of the tactics by firms used to bring complaints against SIPP operators.
"We have seen solicitors pursuing claims for members where investments have collapsed. They have been writing to SIPP providers saying 'Our client has asked us to act on their behalf'.
"In some cases, when we have spoken to the member, they are surprised as they have not given their consent to the lawyers to do so. One firm wrote to AMPS asking to be the professional witness against SIPP providers."
There have also been examples of retrospective cases, or claims that have been previously unsuccessful, that claims management firms are bringing back to the FOS, he believes.
While the figures are alarming, it is crucial to put some of the figures in context.
The FOS spokesperson says: "In terms of our investigation in these complaints, it is still early days. We are still finding the underlying themes and how we are going to deal with them. But generally speaking, it comes down to suitability of advice."
MacGillivray says: "It's disappointing to see this increase. It is a real area of concern to see an increase in members making claims against the providers."
However, he adds: "There has been a large increase in complaints. But looking at the numbers themselves, it doesn't seem so large as the market has in excess of one million SIPPs."
But while it is early days in terms of these complaints, Fatchett says the focus will shift from advice suitability to the role of the provider in future: "I think there is going to be a moment where SIPP providers are measured against the 2013 SIPP model guidance that the FCA gave.
"We have integrated claims where providers have not done their due diligence. One has not been determined yet, as we've prioritised the pension transfers first. There is no doubt in my mind that one will be coming through."
He warns that large-scale closures of providers could be on the horizon due to their involvement with esoteric assets.
"I know which ones will close down as I have been involved in meetings about their potential closure. There will be significant casualties. I can see what the FCA has done to them and how they will close them down.
"What will cause the crash is Harlequin – it is the most dangerous, and it is so big and toxic that no SIPP provider would have done due diligence. I have the list of SIPP providers on how many contracts [they have] and how they did them.
"I know who has the exposure, who is at risk and which are in difficulties. It is some of the names you know, as well.
"If the claims come and are shown to be genuine, they are in real difficulty as they don't have the insurance or capital adequacy to cope. The ones in real danger, we can't speak about at the moment as there are regulatory things going on in the background."
With increased capital adequacy requirements already meaning several small firms could close, this only adds to the woes for the SIPP market. However, it is also clear that providers have shifted their focus to increased due diligence and a move away from esoteric assets.
We will see a very different market emerge in the coming years and so the 123% increase in FOS complaints data could become a distant memory.
A question of selectivity
Watchdog interviewed 13,000 people
Debate over loyalty bonuses
Women more than half (54%) of workforce