By Fiona Tait, Technical Director at Intelligent Pensions
The parties involved
1. The client. Mr Adams was a lorry driver by trade and not an experienced investor. Nevertheless, he did instruct Carey Pensions to invest in Storage First and there was an argument that Carey Pensions were only doing as they were told and that Mr Adams, while unfortunate, should take at least some responsibility for his actions. It also emerged that Mr Adams had been warned against the investment but instructed Carey to proceed anyway.
2. The introducer. Commercial Land & Property Brokers (CLP) were an unregulated introducer company based in Spain. They were undoubtedly responsible for persuading Mr Adams to transfer his existing pension into the Carey SIPP and to invest in Store First. It would seem clear therefore that CLP carry the responsibility for Mr Adams decision. Unfortunately, CL&P no longer exist and as they were not subject to FCA authorisation, there was no real prospect of gaining any compensation from them.
3. The SIPP provider. Given the lack of accountability of CLP, the next best option for Mr Adams was Carey Pensions. They were, and are, regulated by the FCA and could therefore be held to account by both the regulator and the UK courts. Carey’s position was that they were obliged under their contract with Mr Adams to carry out his instructions and had no grounds to refuse the investment.
This was however undermined by the fact that Carey Pensions had already made the decision to stop accepting business from CLP – Mr Adams transaction was then in the ‘pipeline’ and went ahead.
4. The FCA. By the time this case came to court in 2018 the FCA had been concerned about SIPPs and unregulated introducers for several years. Having decided to intervene, they provided seminal evidence to both this trial and in a similar action against Berkeley Burke SIPP Administration to the effect that SIPP providers have a regulatory obligation under COBS 2.1.1R to carry out Due Diligence on potential investments and introducers. They further argued that this overrides the legal requirements of contract law.
Let battle commence
Round 1 – Adams v Carey Pensions.
In May 2020, after what was later noted to be a considerable delay, the Court ruled in favour of Carey Pensions. The jubilant provider commented that the decisions provided ‘clarity to what is expected of a SIPP provider under English Law … when acting on the instructions of a client’ and that it was clear that providers should be expected to carry out execution-only business based on decisions made by their clients. SIPP providers, and many advisers everywhere rejoiced.
Round 2 – Court of Appeal.
The joy was short-lived. Mr Adams was given leave to appeal the decision and in April 2021 the Court of Appeal ruled that Carey Pensions were liable for his losses. This was based on 5 factors:
(i) (As an unsophisticated investor) Mr Adams was entitled to protection under the Financial Services Market Act (FSMA) 2000.
(ii) Under Section 27 of FSMA 2000 SIPP providers were obliged to accept the risks of doing business with unregulated introducers.
(iii) The number of investors ‘spontaneously’ investing in Store First should have given Carey Pensions good reason to be concerned about CLP.
(iv) Although Carey Pensions stopped doing business with CLP in May 2012, they allowed Mr Adams’ investment to proceed.
(v) Mr Adams’ investment was affected after Carey Pension ceased doing business with CLP.
In other words, Carey Pensions was the informed party in this transaction and ought to have known better.
Round 3 – The Supreme Court.
Carey Pensions applied to the Supreme Court however they declined leave for a further appeal, setting the seal on the April 2021 judgement and opening the door to further claims from unwary investors.
Lessons to be learned.
1. Unregulated investments are a high-risk area. It is one thing for experienced trustees to take this risk under the guidance of their professional advisers, but it is difficult to see how they are suitable for the needs of the average individual investor.
2. Financial professionals are expected to put the interests of their clients first, even when this goes against their expressed wishes. Whether it’s Consumer Duty or Law of contract, we are not order-takers and have a duty to challenge clients’ instructions if we have any concerns.
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