The flip side is that the consumer may be able to sell or transfer the asset. However, which hapless buyer would they sell it to and at what price? A sale for a nominal amount could be considered value shifting by HMRC and can create an unauthorised payment charge, which in turn leads to a scheme sanction fee.
The situation is somewhat better after a Financial Ombudsman Service claim. Although the Fos cannot force an operator to close down a Sipp, it can factor in future ongoing costs in its award.
The Fos can also ask a Sipp operator to take ownership of an investment to enable the Sipp to be closed, or where an investment is illiquid and cannot be transferred it can ask the Sipp operator to waive future fees until the underlying investment can be transferred out and the Sipp closed.
It is also somewhat better when the investment is an actual fraud, such as Harlequin. In this instance, many of the companies were subject to insolvency processes, and where companies are liquidated, the pension scheme is no longer holding an asset that will deliver a benefit for the client and the Sipp can usually be closed.
The FSCS told me some time ago that different Sipps take different views when it comes to treating customers with illiquid investments.
It said: “Some Sipps will treat the underlying investment as illiquid earlier than others. Others take the view the Sipp cannot be closed until specific criteria are satisfied and that they are entitled or must continue to charge fees, whereas others are prepared to waive fees.”
The FCA says it engages with companies to ensure it is treating customers fairly in its charging approaches to failed assets. The watchdog may well be, but the outcomes are often not what consumers perceive to be “fair”. Distressing and incomprehensible are the more commonly used terms.
Consumer duty
So let us take another quick look at the consumer duty, a set of rules designed to protect the unwitting consumer.
The FCA is introducing rules that will “require firms to consider the needs, characteristics and objectives of their customers — including those with characteristics of vulnerability — and how they behave, at every stage of the customer journey”.
I think we can reasonably assume anyone who has lost their whole pension to a scam is classed as “vulnerable”. We might also assume that “every stage of the customer journey” includes the contractual relationship after a Sipp investment has failed.
