Calls for permitted investments list to slash FSCS costs

Calls for permitted investments list to slash FSCS costs

AJ Bell has argued a permitted investments list could have slashed the £36m supplementary levy from the Financial Services Compensation Scheme.

The extra £36m levy is being charged to fund Sipp-related claims this year.

The FSCS Plan and Budget report for 2017 to 2018 stated the compensation scheme has received significant numbers of claims against financial advisers in relation to advice given to transfer funds from existing pension schemes to Sipps.  

Article continues after advert

However, it is also clear that the majority of these claims concern advice to invest the Sipp funds in high risk, non-standard asset classes, many of which have become illiquid. 

The compensation scheme also expects to continue to see increased numbers of claims in this category, suggesting that additional supplementary levies may be imposed in future.

Sipp provider AJ Bell would like the FCA to re-instate a permitted investments list for Sipps, similar to that which existed before pension simplification in 2006.  

Only investments on the permitted list would be covered by the FSCS and it would have to be made clear to investors that anything off that list was not covered.

The list would include regulated investments for which there is some consumer protection in place already and it would not have to be static, with new regulated categories added in future. 

Mike Morrison, head of platform technical at AJ Bell, said such a list would also have a positive knock on effect on the battle against pension scams because it is often unregulated investment opportunities that are used to lure people into the scam.

He said: “It is clear from the FSCS report that the main issue around Sipp advice complaints is not the Sipp wrapper itself but the advice to invest in non-standard asset classes such as hotel rooms in Caribbean holiday resorts, storage pods or car parks.

“These investments have been allowed in a minority of Sipps following advice from a small minority of advisers. Unfortunately the ‘too good to be true’ nature of the investments turned out to be exactly that.

“These cases cost the industry both in financial and reputation terms. At a practical level they increase the levy all financial advisers have to pay when the vast majority would not go anywhere near these kinds of investments.

“A permitted investment lists is a simple solution to this growing problem and one that is easy to implement.”

Chris Daems, director of Cervello Financial Planning, said: “The proposals from AJ Bell make sense and would provide a clearer line between sensible Sipp investments and the ones which turn out 'too good to be true'.