FCA Needs to Ban Unregulated SIPP Investments
Published / Last Updated on 22/02/2022
Financial Advisers via research from Coredata has found that 71% of financial advisers want the FCA to ban unregulated investments inside Self Invested Personal Pensions (SIPP).
This issue has plagued the financial services market for years.
HMRC sets the rules on what a pension fund invests in. For example, a pension fund can invest in:
- Worldwide commercial property but not residential property
- Shares and Equities both listed and private companies
- Bonds and Gilts
- Cash and bank accounts
- Precious metals and other commodities
- Cryptocurrencies
- Woodland and forestry
- A much wider range of investments such as SPVs (Special Purpose Vehicle) where a ‘corporate structure’ is established e.g. to buy private commercial jet aircraft.
With some very simple rules that the pension scheme member cannot benefit personally from the assets whilst inside the pension scheme e.g. your pension fund can own a share in an aircraft but you cannot personally use it.
The Problem
Many investment funds, pension funds and bank accounts are regulated by the Financial Conduct Authority and protected by the Financial Services Compensation Scheme. If these collapse, you will receive no compensation but if used a regulated financial adviser, you can sue the financial adviser for negligent advice and receive compensation.
The issue is that clearly an aircraft or gold bullion or a share in a holiday resort in the Caribbean or a share in a port development in Spain are not regulated investments. This means there is no protection for the pension scheme member if those investments fail and those only recourse is to ‘sue’ the financial adviser.
The issue of blame is cast on any financial adviser recommending unregulated products or the SIPP manager not completing enough ‘due diligence’ that the investment was suitable to protect the pension member.
Who Pays?
Financial Advisers like ourselves, that have never recommended an unregulated product or fund end up paying for those advisers that have. Unregulated investments can pay huge amounts of commissions, we have seen upwards of 10%-40% commissions of a client’s investment touted. The investment then fails and the client blames the adviser for losing some if not all of their money. The adviser then ‘cuts and runs’ going under having made huge sums leaving ‘good advisers’ to pay the compensation bill.
Comment
We are experiencing ever increasing Financial Compensation Scheme Levies yet never recommended an unregulated investment. A ban on the same cannot come soon enough.