Sipp providers have seen the worst-case scenario of a very public fallout in the case of Hartley Pensions.
The Financial Conduct Authority stopped Hartley from accepting any new business in 2022 and administrator, UHY Hacker Young, was appointed later that year.
Earlier this year the Financial Services Compensation Scheme declared Hartley to be in default, to pay compensation on clients' exit and administration charges – a one-off charge to cover the extra costs needed to administer an orderly transfer of your assets.
Further negative publicity ensued, with applications made to the High Court, the FSCS having to compensate Sipp members, and the public revelation that no other Sipp provider was prepared to take on the whole portfolio.
According to the latest administrators report, published last month, UHY Hacker Young is in talks with several interested parties about a potential sale of Hartley’s small self-administered schemes book.
In June, Morgan Lloyd, a pensions management and administration business, was appointed to receive Hartley Sipp transfers after a period of due diligence by UHY Hacker Young and interaction with the FCA.
Lessons to learn
So what can Sipp providers learn from Hartley’s failure?
According to Robert Paterson, partner at insolvency practice Wedlake Bell, Sipp providers should be wary of buying another provider's pension book and detailed due diligence should be undertaken first: both financial and regulatory with specialist consultants instructed to assist and provide independent advice.
He adds: "Careful thought should be given to the price offered and would-be purchasers should ask themselves why the portfolio is on the market and if it sounds too good to be true.
"Further advice would include not making multiple acquisitions in close succession: new acquisitions should be given time to bed in and integrate, and there also needs to be sufficient liquidity."
Echoing Paterson’s words is Sipp industry veteran, John Moret, who says taking over another Sipp provider’s business investment or introducer issues requires care and extensive due diligence.
Stephen McPhillips, technical sales director at Dentons, says consolidation for the sake of consolidation is not likely to produce a good outcome for consumers, their professional advisers, or the acquirer.
McPhillips adds: “There are many lessons to be learned from the demise of Hartley Pensions, not least of which is the rapid consolidation of other Sipp books/businesses, regardless of whether or not those resulted from business failures themselves.
“It seems that, in Hartley’s case, the fact that numerous failed businesses were involved was indeed a significant factor in its own eventual demise, but such rapid consolidation activity was always going to prove difficult or problematic in terms of integration and reconciliation of assets.
“Add to this the need to conduct a deep-dive into the acquisition target’s book from a due diligence perspective, and it looks like not enough time was taken to fully consider whether or not the acquisition was a sound business decision. It was certainly a surprising model to adopt from a third-party observer’s perspective.
