This bulletin covers the legal position in England and Wales.


The Supreme Court has refused leave to appeal in Adams v Options UK Personal Pensions LLP (widely known as the Carey Pensions case).  This means that the Court of Appeal judgment remains good law for the foreseeable future, as do those parts of the High Court judgment in the case that were not subject to appeal.

The Court of Appeal judgment in Adams v Options: a recap

The key issues considered by the Court of Appeal related to the effect of section 27 of FSMA which broadly provides that an FCA-authorised person can't enforce an agreement made because of something said or done by a third party (eg an unregulated introducer) acting in breach of FSMA.  The Court held that "advice on buying or selling regulated investments" had a broad meaning and that "any element of evaluation or persuasion is likely to cross the dividing line".  The Court also declined to exercise its discretion to allow the SIPP provider to enforce the agreements despite the FSMA breach.  The Court held that FSMA proceeds on the basis that there is a need "to safeguard consumers from their own folly", and that section 27 is designed to ensure SIPP providers bear the risks of dealing with unregulated introducers.

The High Court judgment in Adams v Options: a recap

For legal reasons the Court of Appeal refused to consider some aspects of the appeal.  This means that some aspects of the High Court ruling in the Adams v Options case remain good law, in particular that:

  • the agreement between the parties is key to identifying the extent of the COBS duty to act in a client's best interests.  Where the agreement is to carry out an "execution only" role, the duty has to be read in that light;
  • the "client's best interests" duty does not require SIPP providers to refuse high risk investments, nor does it impose a duty to consider the suitability of a SIPP or the underlying investments held in it if the contract with the member provides otherwise.

SIPP provider ordered to compensate member for unsuitable investment despite involvement of regulated adviser

The Financial Ombudsman Service (FOS) has ordered a SIPP provider (Rowanmoor) to compensate a member who transferred out of a defined benefit scheme into a SIPP and used his SIPP fund to purchase an overseas property development (DRN-3042933).  This was despite the involvement of an authorised adviser (which had since been dissolved).

What were the facts that led to the FOS determination?

The member had been persuaded to transfer from a defined benefit scheme into a SIPP in order to invest in a property development in Cape Verde known as The Resort Group (TRG).  FOS accepted that the investment did not appear to be a scam. The development had been built and was used by some large holiday companies.   However, the investment had not produced the annual returns the member expected from it and it had not been possible for the member to sell the investment as there was no market for it.  This was in part because a number of fees were deducted from any revenue.  There had also been problems with the title for TRG properties.

The member had been introduced to the SIPP provider by CIB, a regulated firm authorised to provide financial advice.  CIB had since gone into liquidation.

FOS's findings in summary

FOS found that the circumstances surrounding the introductions made by CIB should have put the SIPP provider on notice that there was a risk of consumer detriment.  The SIPP provider should have carried out greater due diligence regarding the business practices of CIB.  Had it done so, the SIPP provider would have discovered the risk of consumer detriment which should have led to it declining the member's business altogether.  

The SIPP provider had sought assurances from members investing in overseas property that they had received financial advice.  The SIPP provider had checked CIB's regulatory status and met with CIB to discuss its business model.  The SIPP provider argued that as it was dealing with another regulated business, it was not obliged to do further due diligence.  However, minutes from a board meeting of the SIPP provider held two years before the member's application to join the SIPP showed that the SIPP provider had concerns that CIB was introducing significant volumes of execution only business, with advice having been provided only on the SIPP itself and not the investments to be held within it.  

The minutes of the subsequent board meeting recorded that one of the SIPP provider's directors had had a telephone discussion with CIB in which CIB "confirmed that…going forward, full advice would be given".  In the same call CIB asked whether the SIPP provider would accept execution only business in cases where the client declined advice.  FOS considered that this undermined the credibility of CIB's assurance that it would give full advice.

FOS considered that the SIPP provider should have:

  • checked with CIB how it came into contact with potential customers and what information was being provided to them by any other party;
  • identified that the 455 introductions of high risk business introduced by CIB called into question whether all were being properly advised, having regard to the fact that CIB was a small IFA firm;
  • requested copies of some suitability letters from CIB once concerns had been raised that clients were not being fully advised.

FOS considered it unnecessary to consider the SIPP provider's due diligence on TRG, as it considered that it was not treating the member fairly or reasonably when it accepted his introduction from CIB.

What was the legal basis for the conclusions reached by FOS?

FOS based its conclusions on the FCA's Principles, specifically:

  • Principle 2 – A firm must conduct its business with due skill, care and diligence;
  • Principle 3 – A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems; and 
  • Principle 6 – A firm must pay due regard to the interests of its clients and treat them fairly.

The SIPP provider argued that the issues central to the complaint were analogous in all relevant respects to the issues considered by the High Court in Adams v Options. It argued that the Principles should be applied consistently with COBS, in relation to which the High Court had held that the agreement between the parties was key to assessing the extent of the duty.  However, FOS considered that neither court judgment in Adams v Options said anything about the Principles.  FOS distinguished the complaint before it from Adams v Options on the basis that the judge in that case was considering alleged breaches of COBS after the contract had been entered into whereas FOS was considering whether the SIPP provider ought to have ceased accepting introductions from CIB prior to entering into a contract with the member.  Finally, FOS noted that Adams v Options SIPP was a claim in the courts therefore defined by the formal pleadings in Mr Adams' statement of case.  In contrast, FOS is required to determine complaints by reference to what is in its opinion fair and reasonable in all the circumstances of the case.

What conclusions can we draw from the recent court and FOS decisions?

At the heart of the recent cases is the question of the extent to which SIPP providers have a responsibility to "safeguard consumers from their own folly", and whether any such responsibility can be ousted by means of contractual clauses.  The Court of Appeal decision in Adams v Options and the FOS decision outlined here both ultimately attached more weight to safeguarding consumers, albeit that the Court of Appeal decision was based on FSMA and the FOS decision on the Principles.  The High Court decision in Adams v Options attached much greater weight to the contract between member and SIPP provider, effectively holding that contractual terms underpin the extent of any broader terms requiring member protection.

One key difference between the facts in Adams v Options compared with the FOS decision was the involvement of a regulated financial adviser in the case considered by FOS.  The FOS determination says that whilst dealing with a regulated firm should offer reassurance that regulatory rules are being complied with, "…it doesn't follow that faith can be blind and nothing further needs to be checked – especially if there are warning signs that things are not as they should be".

Where SIPP providers see a significant proportion of referrals from the same IFA firm, with most or all members then investing in high risk esoteric investments, FOS clearly expects that SIPP providers should not simply take it on trust that proper advice is being given.  FOS gives a strong steer that SIPP providers should be asking to see examples of advice letters in such circumstances.  Whilst the FOS determination makes clear that this is for the purpose of checking that advice has been given, not reviewing the advice itself, FOS's stance does beg the question of whether SIPP providers might in future be held liable for failing to spot that advice was inadequate.

Could the decision of FOS be subject to challenge in court?

The High Court's recent judgment in the case of R (Portal Financial Services LLP) v Financial Ombudsman Service Ltd illustrates the hurdles to successfully challenging a FOS decision in court.  The Portal case also raised the issue of the extent to which one regulated party should be expected to bear liability for the wrongful acts of another. 

Portal, a firm with permission to advise on pension transfers, advised a number of clients introduced to it by Cherish.  Cherish was the appointed representative of an FCA-authorised financial advisory firm that did not have permission to advise on pension transfers.  Portal advised clients on transferring from their existing pension arrangements into a SIPP on the understanding that Cherish would provide further advice on the investments to be held within the SIPP.  Cherish assured Portal that it did not recommend unregulated collective investment schemes (UCIS). However, Cherish did in fact advise almost all its clients to invest in a high risk UCIS.  The clients sustained losses as a result.  Cherish went into winding-up.  FOS held Portal liable for the losses on the basis that it was not entitled to separate the giving of advice on the suitability of a pension transfer from considering the suitability of the underlying investments.

The High Court refused Portal's application for judicial review of FOS's decision.  The judgment highlights that FOS is required to reach decisions that are fair and reasonable in the circumstances.  FOS is required to "take into account" relevant law, but that allows it flexibility to depart from relevant law provided it explains why.  To successfully challenge a FOS decision in court, it is broadly necessary to show that FOS acted irrationally or applied the law incorrectly.  The court will not overturn a FOS decision simply because the court would have decided the case differently. FOS is not obliged to take the same approach as a court in apportioning liability between parties.  That sets a high bar for successfully challenging a FOS decision.

Key contact

Jade Murray

Jade Murray

Partner, Pensions
United Kingdom

View profile