Sipp 'Bad Bank' needed to protect clients

Sipp 'Bad Bank' needed to protect clients

Failing Sipp providers should be gathered into a form of 'bad bank' style solution to protect clients against toxic investments, experts have warned.

Chris Jones, founder of the Rock Consultancy, said the financial services industry should have a solution in place to "rescue" clients in commercially viable Sipps.

He said: "Many firms are holding toxic investments", which he said was a "major stumbling block" when it came to merger and acquisition activity within the ever-shrinking Sipps market.

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Having "toxic" investments, such as highly illiquid, significantly underperforming and even failed funds, was problematic for Sipp providers, as no prospective purchaser would want to take on a book of bad funds and the regulatory and potential legal responsibilities that would accompany such a purchase.

Yet those clients in Sipps that have no money in such non-standard investments "needed to be rescued". Mr Jones said: "A few big money deals means vendors often have a very inflated view of what their own firm is worth and are likely to be disappointed.

"The toxic investment is a major stumbling block and what is really needed is a 'bad bank' solution to allow clients with commercially viable Sipps to be rescued from otherwise failing firms."

Mr Jones said there had been many examples of distressed investments being held within Sipps - diamonds, overseas property developments, store pods, forestry and film schemes being just some of those highlighted by the Financial Conduct Authority (FCA) in recent years.

Mr Jones said: "Where Sipp investors hold such assets, they face problems with being unable to cash in their investments, or unable to sell it to another investor at any worthwhile price.

"They risk being stuck with the Sipp with all its ongoing fees, but no cash or liquid assets in Sipp to pay them with.

"Bigger providers waive fees where there are no cash resources available in the Sipp to pay the fees, but I'm told some smaller providers are suing clients who don't pay. If these rumours are true, then it is difficult to see how this could be treating customers fairly."

Mr Jones added the reality was that if these investments had such a nil value, it should be possible to close the Sipp and end the ongoing fees.

So the call for a bad bank Sipp company to simply "hold and maintain plans holding distressed investments" in a cost-effective way until the assets' issues are resolved would be a good idea, he added.

However, Mr Jones admitted: "As of today, i think this would have to be funded by the public purse. The FCA would be the instigating force behind this, and it would make sense for the regulator to appoint a reputable Sipp provider, so it can harness the providers' infrastructure, systems and expertise."