Advisers will come under ever greater scrutiny over underlying investments in a self-invested pension as the market moves closer to the re-introduction of a permitted investment list, despite the regulator deciding not to ban certain transfers to retail investors, providers have said.
In an alert, published yesterday (28 April), the FCA warned that advice to transfer assets into esoteric investments wrapped within Sipps is to come under a greater level of scrutiny although it stopped short of the ban it placed on recommending unregulated investments to most retail clients.
Speaking to FTAdviser, Gregory Kingston, head of marketing at Suffolk Life, said the FCA’s alert is a “important reminder” as to what an adviser’s responsibilities include.
He said: “The FCA has already taken steps on the promotion of Ucis and this alert shows that they’re also taking action at the other end of the problem by clamping down on the funding for these investments – in this case funding from consolidating different pensions into Sipps.
“There’s no ‘get out of jail free card’ for making a recommendation for a Sipp without taking into account how it will subsequently be invested.”
John Moret, Sipp expert and principal of consultancy business MoretoSipps, said the FCA alert reiterates the call for a return to a permitted investment list, highlighting that as it currently stands there is no restriction on investments that can be undertaken “except where the operator imposes its own restrictions”.
He added that while the FCA has provided some examples in its alert of what it calls “non mainstream” investments, including overseas property developments, store pods and forestry, “these are not actually defined anywhere.
Mr Moret said: “So, for example would investment in unquoted shares or gold bullion be viewed as ‘non-mainstream’? This terminology may be a forerunner to the way in which new capital requirements for operators are to be defined.
“If it is, then it would have been helpful for this alert to have been issued at the same time as the capital requirements. If it isn’t then unfortunately we have yet more terminology being introduced in this area – which given its importance seems unhelpful.
“I think the case for a permitted investment list grows stronger each time the FCA comment on this area –and yet because this would involve changes to pensions legislation there seems little appetite by the authorities to take action which in my view is very disappointing.”
John Fox, managing director of Liberty Sipp, added that the practice of Sipps being used for unregulated investments “has been in steady decline for years” and “now the FCA is seeking to end it once and for all”.
He said: “By forcing IFAs to take responsibility for the suitability of the underlying investments, rather than just the wrapper in which they are held, the FCA is increasing both accountability and protection for consumers.
“IFAs will now have to take a much more holistic view of whether a transfer into a Sipp is appropriate for a client. I’m sure responsible IFAs will not be deterred from doing so, and that the extra reassurance offered to customers will in fact stimulate demand.
“However I fear that those determined to push unregulated investments will now steer their clients towards small self-administered schemes. They continue to be unregulated by the FCA, and are increasingly becoming the last bastion for people looking to invest their pension in non-conventional investments.”
Martin Tilley, director of technical services at Dentons Pensions, said: “In terms of enquiries for these investments it has reduced quite significantly over the last two years. .
“It doesn’t surprise me that they are finding [poor advice] but the vast majority of advisers out there are perfectly ethical.”
He added that there should not be an outright ban as, for some clients, it will be suitable to invest a small proportion of their pension in esoteric investments.
David Fox, director of sales and marketing at Dentons, added: “We are aware that the FCA has already prevented several Sipp providers from holding certain non standard assets however not all Ucis are of a poor quality and as such each Ucis will be reviewed by the Dentons Investment Committee on a case by case basis.
“To put this in perspective for Dentons, of the £2.4bn of assets within our schemes less than 1.7 per cent is in Ucis.”
A FCA spokesman said: “The promotion of Ucis, including Ucis within a Sipp wrapper, is restricted to help protect retail consumers. We are currently undertaking a thematic review of Sipp operators as part of our focus on Sipps.
“We will consider what further action is necessary if we believe that consumers are being put at risk.”
