Berkeley Burke (BB) SIPP clients have received good news that their compensation claims are likely to be paid out by the Financial Services Compensation Scheme (FSCS).
Adrian Allen, of the firm’s administrator RSM, has issued a statement saying the lifeboat fund is likely to pay out all valid client claims, which could top £158 million.
Mr Allen reported that more than 800 clients who had cases against the firm with the Financial Ombudsman Service (FOS) and 28 clients going through court with a group litigation order were all likely to be paid out by the scheme.
He said: “In practice, it is likely the FSCS would pay valid client claims, of up to £85,000 per client, and then stand in the place of those clients with a subrogated claim against the company.
“The FSCS has been kept regularly and fully informed on developments in relation to the sale process…and are supportive of the strategy adopted.”
Effectively this means that FSCS will foot the bill for the compensation and then reclaim as much as possible from the company.
Independent financial advisors are breathing a sigh of relief as they feared they would have to pay the compensation via their FSCS levy.
The claims involved are all linked to whether or not BB carried out due diligence on the unregulated companies it recommended its clients invest in.
The firm had been involved in a long-running appeal with the Financial Ombudsman Service (FOS) over a decision where FOS had ordered BB to pay a client the balance of his pension which had been lost in a poorly advised investment.
Unexpected duty of care
BB claimed FOS had ‘erred in law’ in a way that created ‘a new and unexpected duty of care’ on SIPP operators to investigate investments before accepting them into a scheme, but it lost the appeal.
However, Lord Justice Hickinbottom in the Court of Appeal gave BB permission to take the case back to the High Court as the decision is potentially one of ‘considerable and wider importance within the industry and for customers.’
But immediately after going into administration, RMS announced the appeal was being dropped as it was too costly and because it had ‘a primary responsibility towards the company’s creditors’.
Accordingly, The High Court ruling of October last year by Justice Jacobs now stands, identifying four instances when he felt a Sipp operator should intervene in an investment:
- When the proposed investment is not eligible for the tax benefits of being put in a SIPP.
- When the rules on what can be put into a SIPP change.
- When the provider receives information which casts doubt on the integrity of those promoting the investment.
- When the SIPP provider has learnt of problems, such as a possible insolvency, which affect the proposed investment.
The judgement is seen as being important because it establishes with greater certainty whether SIPP providers have a duty of care in performing due diligence on unregulated investments.