Scary investment schemes
With Halloween coming up later this month, it seems to be a good time to highlight a couple of very scary investment schemes that are being promoted to investors.
The first appears to be targeting people with small pension funds. It works on the basis that they transfer these pensions to a Self Invested Personal Pension (SIPP) and invest this money to cover the deposit on offshore, off-plan hotel room developments.
The initial investment covers around 30% of the purchase price, with the intention of financing the full cost of development at a later date.
Where this scheme particularly worries us, apart from issues around risk and liquidity, is the alleged structure of the investment promotion. We understand that investors are passed from their IFA to a third-party to transfer the pension fund into the SIPP, before being passed back to the IFA who will then transact the unregulated investment.
The commission being paid to the IFA for this investment scheme is best described as eye-watering. It is between 6% and 9%, but based on the estimated property valuation rather than the amount invested. This can mean that as much as 30% of the investment is taken in commission!
Another scary investment scheme we have spotted details of involves the claim that insurance companies need to bolster their solvency levels ahead of new EU legislation.
As with many scams, this is based on an element of truth. Insurance companies do face higher solvency requirements, as a result of the Solvency II rules coming into force in 2012. It seems unlikely however that this particular investment scheme would qualify towards these new solvency standards.
The scheme targets homeowners with no mortgages, and offers to lease their property for three year periods, with the insurance company taking over half the value of the property for that three year period.
At face value, there appears to be very little wrong with this scheme, particularly as the homeowner can opt-out at the end of each three year lease period. It is the false premise with which the scheme is being promoted which concerns us, as we feel it is unlikely to aid insurance companies with boosting their solvency positions.
If something seems too good to be true, it usually is – especially when it comes to investments!
This can be a scary time of year, made even more scary by some of the dodgy investment schemes we often see being promoted.
Steer clear of anything that arouses your suspicions and seek professional independent financial advice, from a firm who charges fees rather than receives commission from selling you investment products, and you can avoid scary investment schemes such as these.
Photo courtesy of tallkev.