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Due Diligence Charges

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We discuss the introduction of charges by Sipp providers to carry out Due Diligence on new Investments

Berkeley Burke Judicial Review

The recent judicial review brought by Berkeley Burke against the FCA highlights that a Sipp provider can no longer abdicate its responsibility for due diligence by blaming bad investment choices on the basis that they were operating on an “ execution only” basis and only carrying out their client’s instructions. In fact,  Justice Jacobs, in the Berkeley Burke judicial review, firmly placed responsibility for conducting due diligence on SIPP providers and stated that “any suggestion that a Sipp provider must execute a transaction produces surprising results and cannot be right.”

Increased levels of Due Diligence

The recent Berkeley Burke case has highlighted an increased level of emphasis and responsibilities being placed upon Sipp providers to subject investments and investment providers to greater levels of scrutiny and increased levels of due diligence . In fact, Justice Jacobs went so far as to articulate certain red flags that Sipp providers should be alert to as risky or illegal investments where the viability of the investment or the integrity of those running these investments is questionable.

Sipp Providers Responsibility

Sipp providers are under an increased duty to consider whether the investment being recommended is suitable for the client, in terms of their level of expertise and experience, their client’s attitude to risk and the client’s financial resources. Recommending high risk, unusual investments in markets that the client has little or no knowledge of is certainly not acting in the client’s best interests. Sipp providers are also required to be honest and are being placed under a duty to explain to clients that the investment could fail and that their money may not be returned to them.

Charges Introduced

As they say, nothing in life is free and some firms like Sipp providers- Rowanmoor (which is owned by Embark) have risen to the challenge and the requirements outlined by the recent court decision to conduct and engage in greater levels of due diligence with regards to new investments, albeit at a greater cost to their new and existing clients.

They have announced that from the April 1st 2019 onwards that they will be charging a £500 upfront fee + tax to carry out due diligence on potential investments and investment providers before accepting any new business.

Whilst the added costs of performing due diligence will lead to an increase in fees in the long run, it may go some way to stopping client’s from investing their life savings into schemes which may not even exist in the first place or were doomed to failure from the start .