Self-invested personal pension rescue processes, which often see huge sums of liabilities transferred to the Financial Services Compensation Scheme while the Sipp book is sold on, seem problematic for some, but not structuring it in this way would be even worse, says Mark Smith.
Smith, a consultant and expert when it comes to Sipp rescues, having worked on the Gaudi administration and others before it during his time at Mattioli Woods, says most solutions in Sipp rescues end up kicking the can down the road.
A particularly contentious one is selling the Sipp book to another provider but transferring the liabilities to the FSCS. But the alternatives are even bleaker for the members involved, he says.
"If a firm is not able to go through an orderly transaction, they'll need to look at things like splitting, let's call it a good and a bad book, [and] to actually do that can be a really lengthy process.
"It also means that the Sipp members with the good assets are also locked down in that situation.
"So by being in a position where you transfer the whole business to a new provider means that the members with good assets can actually manage their affairs while the bad book is still unresolved.
"That's one of the key reasons it happens in that way because ultimately, yes, those liabilities potentially fall back to FSCS but the alternative is that the Sipp operator fails with all of their good and bad books and creates an even bigger issue from an FSCS perspective.
"While I know it's sometimes seen as a negative, it's actually a better solution than what the alternative might be."
Smith has experience in working with the Financial Conduct Authority on Sipp rescues and explains the regulator is put in a challenging position because there are myriad issues that could crop up, from the exit strategy to a possible wind down of the business, as well as contingency planning if a planned sale falls through.
"Fundamentally the FCA are there to make sure that there are good outcomes for consumers and they'll want to make sure that if there has been poor practice that they're able to actually step in and look at what the optimal solution might be."
The process itself can result in the failure of the business due to the high costs involved in strategising and planning the exit, he says.
"What's absolutely key is working with the FCA in an open and transparent manner as a Sipp operator.
"And the reality of that is probably two or three meetings a week with the FCA every week all the way through the process so they fully understand what's going on."
To hear more about Sipp rescues, how recent high-profile failures have shaped the current Sipp market and what advisers should look for when picking Sipp providers for their clients, click on the image above.
