A Financial Ombudsman Service decision regarding a Hargreaves Lansdown self-invested personal pension customer has highlighted the risks that can come with taking the DIY route.
While losses are an inherent risk of investing, what perhaps distinguishes this particular case is the fact that it centred around a vulnerable client.
Among other things was Hargreaves Lansdown’s alleged failure to identify the customer’s compulsive gambling addiction before it was disclosed and to safeguard his Sipp from the risks that the addiction posed.
But the ombudsman considered it “beyond dispute that Hargreaves Lansdown reacted correctly in the steps it took to safeguard the Sipp after it became aware of the addiction”, and was “not persuaded that there are grounds on which it should have identified the addiction”. The complaint was ultimately not upheld.
While acknowledging the unfortunate circumstances of the case, Keith Richards, chief executive of the Consumer Duty Alliance and chair of the Financial Vulnerability Taskforce, agrees the ombudsman’s decision was the right one. “DIY means DIY, and there are associated ‘self-insured’ risks compared to employing a professional.”
There are, however, lessons to be taken from this case, Richards adds.
“Sipp providers and platforms do have a consumer duty to spot vulnerability and offer support where considered appropriate. That doesn’t mean they are liable to compensate for poor outcomes however, unless a firm’s own failings caused or contributed to a loss.”
Might the outcome have been different post-consumer duty?
But as MorganAsh managing director Andrew Gething highlights, the circumstances of this particular case took place before the consumer duty came into force in July 2023.
“As the regulation makes the requirement to understand a consumer’s vulnerability, I suspect the Fos decision might have been different had this occurred after July 2023,” he says.
Gary Maude, director of advisory practice at TCC Group, a compliance consultancy, agrees that regulatory expectations have changed with the introduction of the consumer duty.
“If there is a material change in spending pattern that the Sipp operator identifies as a concern, it should consider contacting the client. Of course to do so, the operator needs consistent criteria for what equates to ‘unusual’.
“Similarly, if the client was advised, and one adviser was investing a significant number of clients into esoteric investments, there would be a regulatory expectation to look into this,” says Maude.
“The challenge is identifying the concern in the first place, and the best way to contact the client. It could be that there is a perfectly fine explanation for the change, but to act to ensure good customer outcomes it can be beneficial to contact clients who may be displaying concerning signs of known vulnerability.
“For example, the FCA has articulated that firms should use all reasonably available data to manage customer outcomes, and known patterns of activity should, of course, lead to the analysis of possible vulnerability. The challenge of differentiating between ‘normal’ vs ‘unusual’ patterns is key.
