How to add esoteric investments

The suitability of a particular investment for any one client is in the domain of the adviser, but in the generality of principles, some exposure to adventurous investments can also be a good strategy.

The adviser needs to pay heed to FCA regulations, in particular the promotional rules regarding non-mainstream pooled investments, which encompass unregulated collective investment schemes (Ucis) and other similar structures. Mindful of the net worth and sophistication of the investor, it is worth noting these can be allowable investments within a Sipp portfolio.

Restrictions

There are few restrictions on what a Sipp can invest in, however certain investments incur sizeable tax penalties if entered into and therefore by default are deemed as not permitted. This includes investment, directly or indirectly in tangible moveable property and residential property (with a few exceptions), loans to members or anyone connected with them and unquoted shares that do not qualify as a genuinely diverse commercial vehicle.

So aside from those restrictions, there appears to be every opportunity for the adviser to add the more obscure assets to a client’s Sipp portfolio where suitable.

Your choice

That belies the fact that, while there may be many Sipp operators in the marketplace, not all Sipps are equal. A number of Sipp operators provide a Sipp product with choice restricted to only quoted and regulated investments available through a particular platform. Others may allow a broader range of standard investments including the use of stockbroker accounts and investment in commercial property. Where more specialised investments are required, the greater the need to use the services of a bespoke Sipp operator.

Ultimately it is down to every Sipp operator to determine what is allowable, within HM Revenue and Customs (HMRC) defined parameters. Some, for example, may have a blanket rule not to allow any overseas investments. Therefore advisers will need to do their homework even among bespoke Sipp operators as to the acceptability of a particular investment, as each will apply different criteria when assessing whether something is allowable.

Sipp operators should be carrying out extensive due diligence before allowing an investment and this extends beyond simply testing whether it meets HMRC requirements. A factor to consider is that the Sipp operator - through its trustee company - will be the legal owner of the assets and therefore must consider the risks of ownership from its own perspective. This entails ensuring that secure ownership and title to the asset can be obtained and all reasonable steps taken to ensure it is genuine and not a scam.

It must also guard against liability, for example by limiting liability on investments that can go negative such as futures and options. There are administration issues to consider such as ensuring the asset can be properly valued to comply with benefit crystallisation event calculations and reporting. The liquidity of the asset also needs consideration. Just as important as the initial due diligence is the need for ongoing due diligence as it may only be after a period of time that it becomes evident the investment may not be all that it seemed.

In experienced hands

It is therefore critical that bespoke Sipp operators have knowledgeable and experienced staff to carry out this due diligence. Advisers will still need to satisfy themselves the asset is a credible investment for their clients - although it may be allowable, it does not infer any recommendation or mean it will necessarily be a good, nor indeed a suitable, investment for the client.

However, the opportunity exists for advisers to service the needs of clients for whom exposure to more adventurous investments is possible, by linking up with an expert bespoke Sipp operator.

Robert Graves is head of technical services at Rowanmoor Group plc