SIPPSep 6 2019

Call for review of Sipp rules to consider emerging assets

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Call for review of Sipp rules to consider emerging assets

Blend Network has called on the Financial Conduct Authority to update the rules governing self-invested personal pensions to take into account emerging assets.

The property investment platform has said updating Sipp regulations to take account of the emergence of new financial asset classes will help investors diversify their holdings and better navigate economic uncertainties such as Brexit.

Research by Blend Network, found that nearly half (43 per cent) of Sipp holders had shares, this was followed by cash (33 per cent), unit trusts (29 per cent) and investment trusts (22 per cent).

But now there is an emergence of new asset classes such as private equity, cryptocurrency and exchange traded-funds.

Blend Network said clients who have a greater diversity in their Sipp portfolio are more likely to get achieve a better performance even in volatile markets.

Blend Network stated: “It is no surprise that most Sipp holdings are in traditional asset classes, such as unit trusts, listed stocks as these so-called standard assets are more mainstream.

“Also Sipp providers have an interest in their clients holding such assets as the FCA imposes a very significant premium on Sipp providers with regard to capital adequacy for holding non-standard assets, which are typically unregulated investments and unlisted company shares.”

According to Blend Network’s research, exchange traded-funds make up 17 per cent of Sipp assets. 

This type of fund offers investors flexibility as they can be bought and sold at any time of the day, while mutual funds settle after the market closes. 

Exchange traded-funds also have lower fees while being tax efficient as investors have control over when they pay capital gains tax.

Around 7 per cent of Sipp holders already invest in cryptocurrency while others have turned to peer to peer loans.

While investors hold a certain degree of commercial property (7 per cent), exposure through peer-to-peer platforms is less expensive and allows investors more flexibility and to build up a diverse range of holdings, according to Blend Network.

Yann Murciano, chief executive at Blend Network, said: “Alternative investments have become an increasingly popular option for investors who are looking to diversify their portfolios in order to mitigate the risks of an increasingly volatile global economic environment. 

“Yet the regulations around Sipps have not seen any significant change for many years, which makes it more difficult for Sipp holders to consider these alternative investments. 

“We believe that it is time for the regulations around Sipps to be modernised and, in particular for the rules around what is a standard and non-standard asset be updated to take into account of the broad range of alternative asset classes that have now emerged so that investors can diversify their holdings to better position themselves in the midst of the current economic and market volatility.”

But Martin Tilley, pensions director at Hurley Partners, disagreed as he believes Sipp providers would not want to venture into these asset classes.

He said: “It would appear that [Blend Network] are a lone voice, since many industry commentators are calling for a permitted assets list which reduces the scope of the non-standard and high risk assets, which in the past have led to loses by those who have either not understood what they have invested in, some of which have been scams, some of them, just poor investments not suited to the client’s risk attitude.”

He added: “What Sipp providers will actually accept is up to them as individual businesses. Bearing in mind the courts cases and Financial Ombudsman Service determinations putting the responsibility for acceptance of suitable assets into Sipps squarely on the Sipp provider,  I cannot think that there would be an appetite for Sipp providers wanting to accept assets such as cryptocurrency. 

“I cannot believe that you will find regulated advisers keen to recommend the asset class and finally there are few Sipp providers accepting non advised business into high risk asset classes.”

James Jones-Tinsley, self-invested technical specialist at Barnett Waddingham, also agreed that providers tend to stay away from these types of asset classes as they may lead to illiquid investments.

Mr Jones-Tinsley said: “We would actually view assets like private equity as 'receding' rather than 'emerging' assets, as increasing numbers of Sipp operators do not permit these type of investments any more.”

“For private equity, the FCA have encouraged Sipp operators to resist accepting assets that are illiquid, risky and speculative in nature; arguably, an example of which could be private company shares."

He added: "It is often argued that a well-diversified investment portfolio across a range of different asset classes and geographical locations offers the opportunity for positive investment returns over time.

“However, it is important that the type of assets used within such a diversified portfolio remain appropriate and scrupulous.”

amy.austin@ft.com

What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.