A third of advisers believe non-standard assets are a key component of self-invested personal pensions (Sipps) despite others in the profession shunning these high-risk investments on the back of recent Sipp cases.
A study from CoreData Research, published last week (July 29), found out of 250 advisers 29 per cent thought non-standard investments, including illiquid and hard-to-sell items, had an important role to play in Sipps.
This increased to 36 per cent among advisers who had more affluent clients.
In addition, these advisers also believed that regulations aimed at Sipp providers holding non-standard assets had been “detrimental”.
In 2016, the Financial Conduct Authority introduced tighter capital adequacy rules for providers, stating that all asset types must be categorised as either ‘standard’ or ‘non-standard’.
Providers are also obligated to carry out the necessary due diligence to assess if there are problems with an investment and are required to take appropriate action if need be.
Nearly a third of advisers said capital adequacy rules had restricted investment choice and a fifth (21 per cent) thought the rules should be updated to make it easier for investors to purchase non-standard investments.
However, two in five (40 per cent) still believed Sipp providers should not be able to hold non-standard assets, albeit this had dropped from 49 per cent in 2019.
Meanwhile, half (56 per cent) said they were more cautious about high-risk investments following recent court cases involving Sipp providers.
Berkeley Burke for instance was embroiled in a Financial Ombudsman Service decision from 2014 in which it was ordered to compensate a client after it failed to carry out adviser-style due diligence on his investment.
The case went on for years before it was dropped by the administrators of the now defunct Sipp.
More recently, Carey Pensions won its case after the High Court found against the Sipp client bringing the claim, judging Carey Pensions should not compensate him for a high-risk, execution-only store pod investment.
It essentially adjudicated an execution-only service does not bear responsibility for the high-risk investments it offers within its Sipp range.
Tom Selby, senior analyst at AJ Bell, said not all non-standard assets were a bad investment choice but added the government should set up a monitoring scheme for Sipps.
Mr Selby said: "Just because an asset is defined as ‘non-standard’ isn’t in and of itself a bad thing. Commercial property and some term deposit accounts, for example, are non-standard but also perfectly legitimate investment options.
"There might be merit in investigating reintroducing a ‘permitted investment list’ for Sipps, with the government and regulator setting out what they believe should be an acceptable investment in a pension scheme. That could help to stop repeats of some of the Sipp-linked investment scandals we have seen in recent years.
"Any such list would need to be designed carefully, however, to ensure situations where an investment was previously permitted but then became non-permitted due to reasons outside a provider’s control (e.g. if a stock delisted)."
Other concerns
Charges remained the main concern when advising on Sipps among 62 per cent of advisers but there were also increased levels of concern about professional indemnity coverage (23 per cent), claims management companies (22 per cent) and scams (15 per cent).
Craig Phillips, head of international at CoreData Research, said: “These higher levels of concern likely reflect pressures arising from the Covid-19 crisis.
“Some advisers might be struggling with soaring PI premiums amid the Covid-19 financial fallout, for example, while the crisis has also created new opportunities for pension scammers.”
amy.austin@ft.com
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