Sipps firms warn over risk due to FSA Ucis ban ‘loophole’
Dentons warns providers must not become “weak link” and check to ensure direct clients are able to act without advice.
Self-invested personal pension providers have broadly welcomed the move by the Financial Services Authority to ban promotion of unregulated collective investment schemes, but have warned that the sector must remain vigilant due to a loophole in the proposals.
Yesterday (22 August) the regulator issued a consultation paper proposing to ban the sale and promotion of Ucis to mainstream retail investors.
Sipp providers in particular were vocal about the plans, not least because many have often found themselves as platforms for Ucis investments, to the detriment of investors.
One high profile provider even claimed that Sipps are being deliberately targeted by those that market Ucis products due to the inherent flexibility offered by the wrapper, adding that there was concern in the industry that several high-profile failures are tarnishing the Sipps name.
Others providers have called for a return to the recommended investment list used prior to A-day to avoid issues arising.
Martin Tilley, director of technical services at Dentons Pensions Management, highlighted that despite the likely ban unregulated advisers could continue to recommend schemes and that direct clients may continue to represent a risk to Sipp providers.
He argued that Sipps providers should not become the “weak link” and should check on the status of direct clients to avoid problems.
Mr Tilley said: “The FSA can only influence regulated advisers and the worry from a Sipp industry point of view is the promotion direct by the Ucis provider itself or through unregulated salesmen to inappropriate [non-sophisticated] investors, including potential Sipp holders.
“Whilst a Sipp provider should not make a judgement on the suitability of an asset for an individual client, many including ourselves require any direct client wishing to invest in a Ucis to certify - and in certain cases provide evidence - that they are a sophisticated investor before we will accept the investment.
Greg Kingston, head of marketing at Suffolk Life, also pointed to the loophole regarding direct clients in the proposals, highlighting a section of the FSA paper that states execution-only Ucis sales will still be acceptable providing there’s been no promotional communications.
He said: “Several months ago I raised questions about the role that some Sipp providers play in promoting these investments and it seems the FSA shares these concerns.
“[The rules] could be difficult to enforce and leaves some wriggle room over what is and isn’t a promotion, especially with the explosion of social media.
“At the risk of sounding flippant, how many investors wake up one day and decide to search for an overseas bamboo investment without being prompted?”
Stewart Dick, head of sales at Hornbuckle Mitchell, believes the FSA’s proposals won’t have a massive impact on the Sipps market.