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Home > Opinion > Ashley Wassall

FSA is forcing Sipp firms into quasi-watchdog role

Imbroglio over potential mis-selling and fraud could be avoided if FSA provided proscribed investment list.

By Ashley Wassall | Published May 02, 2012 | Pensions | comments

A common narrative suggests that self-invested personal pensions have been the flavour du jour of retirement products in recent years, following an explosion in sales since A-Day in 2006.

However, for every commentator extolling the benefits and flexibility offered by Sipps, there is another excoriating the sector, with accusations ranging from profiteering through charging high fees for products that are effectively jumped-up personal pensions to obfuscation of charges altogether.

The regulator clearly shares some of these concerns: it has been conducting an on-off review into the sector since at least 2008. Recently, finally, it has begun to share some of its findings and conclusions.

Thus we had a consultation paper earlier this year outlining new proposed disclosure rules for Sipps firms, which would require them to transparently describe fees and, more controversially, provide projections in the same way as other personal pensions.

Many Sipp providers are clearly uncomfortable with a system that would require them to check recommendations given by professional advisers

Further pronouncements on capital adequacy are also long overdue - and are expected to be published in the coming months.

Of late, however, such debates on the basic composition of Sipps have been eclipsed by questions over the due diligence that is conducted by providers in the wake of several scandals over alleged fraud and potential mis-selling of esoteric investments.

Furore began last year, when advisers raised concerns over Sipp clients being switched into unregulated collective investment schemes as the regulator initiated what has become a lengthy crackdown on such investments.

Since then there have been several high-profile cases of potential mis-selling of allegedly fraudulent investments, most recently last week when it was revealed that investors may have lost around £40m through investing in an insolvent bio-fuel investment company that is under investigation by the Serious Fraud Office.

According to the court-appointed management receiver for the firm, Adrian Hyde, a partner at Chantrey Vellacott DFK, there are as many as 2,000 investors exposed to the investment through 12-15 Sipps providers.

The case sparked a heated debate after Mr Hyde’s polemic comments that he hoped the the affair “will result in more stringent controls being put in place” by the Financial Services Authority.

One Sipp firm that placed the investment, Rowanmoor, offered a fairly caustic defence of its due diligence process, with the firm’s head of technical services Robert Graves saying that “it is difficult to see what Sipp providers could do over and above current due diligence to stop fraudulent activity”.

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