Insistent clients dealt a final death-blow by tribunal
Written on 10/08/2018

The Upper Tribunal has upheld an FCA decision to fine and ban Alistair Burns, chief executive of advice firm TailorMade Independent Limited. The Tribunal rejected Burns’ defence that he only set up the SIPPs.  And not a lot else.  Alastair Burns argued that he did not advise on the underlying investment choice so therefore should not be liable for this investment.  The Tribunal described the SIPP and the underlying investments chosen as an “indivisible package of benefits”.

The Tribunal confirmed the FCA’s stance that when a financial adviser gives advice to a customer who wishes to transfer out of their current pension arrangement to release funds to allow them to invest in an overseas property investment through a SIPP, then the financial adviser “must consider” not only the suitability of the SIPP itself but the suitability of the investments that may be held in it.

The decision represents a torpedo for insistent client-advice.  It makes the adviser jointly liable for all actions resulting from arranging the contract.  You arrange the contract, you can expect to be held liable to have helped the customer to harm herself.  

It means that you cannot recommend a SIPP if you think the customer may use it to invest in unsuitable investments.  You’re responsible for the whole shooting match! Would you sell a gun to one contemplating suicide?

Equally it reinforces the argument that IFAC have frequently cited, that you cannot arrange for insistent clients and expect to wash your hands of the liability.  The arranging would be part of the “indivisible package.” Insistent clients remains a no-no for IFAC members.

The Tribunal found that a financial adviser cannot give suitable advice if it advises on the SIPP alone because the SIPP and its underlying investments are part of an 'indivisible package of rights' which form a customer’s overall pension arrangements. 

“In our view it is clear from our analysis of the way in which the relevant provisions of the RAO {Regulatory Activities Order} are constructed that where a firm advises on the merits of establishing a particular SIPP in circumstances where it knows that the customer’s intention is that the SIPP will invest in particular assets which are not themselves 10 specified investments for the purposes of the RAO, then advice on the merits of the underlying investments to be held within the SIPP is a component of the advice on the merits of establishing the SIPP and is therefore a regulated activity. 

The reason for this conclusion is that the particular investment that is being advised on includes the rights of the customer that he will acquire upon the establishment of the SIPP….In other words, the customer is being advised on an indivisible package of rights which includes the rights arising out of the acquisition of the particular assets to be included within the scheme.”

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