Adviser Rant: Don’t underplay the risk of Ucis

Benjamin Fabi

This week, manager Brandeaux suspended all eight of its specialist Ucis funds, following what it described as “significant challenges in terms of liquidity for open-ended property funds”.

It cited as an example “the impact of PRA and FCA regulatory initiatives aimed at discouraging IFAs from marketing non-PRA- and [non-] FCA-regulated funds”. It is not the first to have taken this stance.

So why shouldn’t the regulator seek to discourage investment in Ucis and other non-regulated funds? I am by no means against the idea of a life settlement, student accommodation or even fine wine fund, but the issue that has caused the regulator’s attention is the concentration in which they are sold to people without the capacity for loss they represent.

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Ucis are Ucis because they have fundamental operational differences to regulated funds, which increases their risk. Some IFAs will argue that the regulatory scrutiny is playing out Thomas’ theorem. However, when you see 80-90 per cent of a Sipp invested in Ucis by advisers who don’t understand the risks but find it easy to sell a graph that is always going up, the regulatory noise is not the issue.

The real issue is one of competence and professionalism. Ucis are suitable in small quantities for large portfolios. They are not for the standard balanced-risk retail investor, especially those close to retirement who are the most exposed with the most to lose.

Benjamin Fabi is paraplanner at The Timebank