David Phillips provides valuable clarification regarding SIPP provider responsibilities
The FSA has been regulating the administration of SIPPs since 6 April 2007 under the permission of ‘establishing/operating/winding up a personal pension scheme’. In December 2008 the Small Firms & Contact Division of the FSA wrote to about 60 small firms requiring a questionnaire to be completed and sample documents to be provided in order that they could carry out a thematic review to assess how the small SIPP operators were adhering to their principles and rules. About half of those approached had a follow up telephone assessment and some had a subsequent FSA visit. This was completed by mid April 2009 and the review findings were published in September 2009.
This was purely a review of small firms and I am unaware of any similar review having being carried out on the large SIPP operators, so despite some comment to the contrary, the review doesn’t compare large with small.
As with all FSA reviews, they found good and not so good areas. The conclusion was that, taken as a whole, small SIPP operators don’t pose a significant threat to the FSA’s statutory objectives.
As expected a number of the areas of concern were around the inability of operators to demonstrate that they were doing something. Formal Management Information was perhaps less structured than it would be in a large company where managers were far more removed from those running the schemes.
Areas of concern
The review did however raise one main area for concern to AMPS members, both the small firms covered by the review and also large firms.
This was the apparent suggestion that the operator should monitor the advice given by an IFA when introducing a client. The SIPP operator calling for copies of suitability letters was one example given by the FSA of possible good practice.
This example was repeated by Peter Lovegrove of the FSA when he addressed an AMPS open meeting last month. The suggestion seemed to go well beyond the guidance in RPPD (The Responsibilities of Providers and Distributors for the Fair Treatment of Customers) which only requires the operator to identify target markets for its products and to then monitor whether actual practice corresponds (or deviates) from that target. This would suggest a high-level oversight on type and source of business not the in-depth scrutiny of individual cases.
If an operator asked for a copy of the suitability letter, and assuming that the client/IFA was prepared to provide it, what would they do with it? Who would read it? Would they be competent (authorised) to judge the advice given. Suitability letters in isolation don’t give anything like the whole picture, where would it end?
Clearly when a case is introduced by an IFA, the operator has a duty to check that the IFA is correctly authorised by the FSA to give advice, but what else?
Firstly, the SIPP operator has a duty through Management Information to identify possible instances of financial crime.
Secondly, the operator should have controls in place to analyse Management Information to identify possible consumer detriment such as unsuitable SIPPs. The Pension Switching review undertaken by the FSA last year identified areas of concern where SIPPs were being sold when PPPs or stakeholder plans might have been more appropriate and/or cheaper. Over a period of time this type of business should be readily identifiable to the operator, who in the first instance should raise the issue with the IFA concerned. It’s quite possible that there are good reasons why a SIPP is the preferred choice which may not be immediately obvious to the operator.
In the recent joint ABI/AMPS discussions with the FSA on disclosure of SIPP charges it was made clear that a future, possible property purchase within a SIPP was not necessarily a good reason to incur SIPP costs now if a cheaper product was available in which to build the fund up until a possible property was found. Clearly the IFA will have far more knowledge than the SIPP operator to make that call.
The FSA has clearly stated in the review that “we agree that firms acting purely as SIPP operators are not responsible for the SIPP advice given by third parties such as IFAs”.
It seems that the initial concerns of SIPP operators were misplaced but it is a timely reminder that they must monitor the profile of the cases they are receiving from IFAs and that they have a duty to raise questions if there is a pattern of seemingly inappropriate cases from one source.
David Phillips is founder of DP Pensions and an AMPS committee member
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