SIPP providers- Due Diligence Questions to Consider

SIPP providers would not win any popularity contest at the moment- widespread polemic in the media has been created as a result of some high profile court cases and Financial Ombudsman Decision which has not portrayed them in a good light: especially in so far as due diligence is concerned. 

They are not the flavour of the month at the Financial Conduct Authority (FCA) either. Following confirmation that SIPP provider Berkeley Burke’s appeal of a High Court Judicial Review would not go ahead the FCA issued a statement in October 2019 reminding SIPP providers of their duties to ensure proper due diligence is carried out on clients’ investments before they are accepted. They were also told that if a SIPP firm cannot meet its financial commitment a sale may be in customers’ best interests whilst warning that compensation claims must not be ignored when selling business assets.

This may be a classic case of a few rotten apples. No doubt there are good SIPP providers out there but how can investors tell? What can investors do when they get a call from an Introducer? And, more importantly, what questions should they be asking?

Below are some practical pointers.

  1. How well established is the SIPP provider? 
  1. Does it have a good reputation in the industry? Check them out at the FCA. 
  1. Do they establish a client contact who will look after your SIPP on a day to basis and offer face to face or on-line technical support where needed.
  1. Look at the Financials. Is there a proven track record of profitability over time?
  1. Ask for client testimonials.
  1. Seek independent advice from a Financial Planner- this may enable investors to establish some more specifics:
  1. Financial stability in greater detail;
  2. The quality of the management team;
  3. Capital adequacy especially where some proposed investments may be non-standard;
  4. The process through which any instructions from introducers are accepted including:
  1. Ensuring that all third party due diligence the introducer has used or relies on has been independently produced and verified;
  2. Ensuring that the SIPP provider has carried out appropriate checks including ensuring that where relevant introducers have the appropriate permissions, qualifications and skills to introduce different types of business to the firm and undertaking additional checks such as viewing Companies House records and verifying records held at the FCA;
  3. Ensuring that the SIPP provider insists that the introducer complies with FCA regulations and industry good practice;
  4. Checklists which identify that the SIPP provider has considered the risks of accepting instructions from an unregulated introducer;
  5. Ensuring that any Terms of Business the SIPP provider has in place with unregulated introducers makes it clear that the unregulated introducer cannot advise or carry out any regulated activities not permitted by the FCA;
  6. Establishing whether the SIPP provider takes volume or bulk referrals from an unregulated introducer;
  7. Reviewing any promotional material produced by the unregulated introducer;
  8. Establishing supervision protocols and regular audits/spot checks to ensure that unregulated introducers continue to act in accordance with Terms of Business- which may include verification checks to be carried out by third parties including solicitors and forensic accountants.

It is critical to realise that unsuitable SIPP transfers may mean the entirety of investors’ hard earned pension being reduced to zero in no time at all. So it is important that key questions are asked before any decisions are made to entrust the pension pot to a SIPP provider.

Many investors may not be experienced and sufficiently well versed to ask the right questions of SIPP providers so it is important that advice is sought as early as possible. Investors can say no to a SIPP provider that is suggested to them. It might be unwise to consider any SIPP provider who takes instructions from an unregulated introducer- plenty do not.

If advice is sought from a Financial Planner who is FCA regulated and that advice is incorrect then investors are likely to have the benefit of the firm’s Professional Indemnity Insurance to cover any losses incurred.

Get in touch to discuss.

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