The Financial Services Authority (FSA) has issued an alert that makes both important but also disappointing reading.
They have noted that some financial advisers are giving advice to customers to transfer (or ‘switch’ as the FSA calls it) from pension arrangements into a Self Invested Personal Pension (SIPP) without taking due care to identify what the customer is then going to do in terms of investing the pension fund.
In particular they have identified investments going into unregulated products (both unregulated collective investment schemes and unregulated direct investments).
The FSA has identified some of the latter such as diamonds, overseas property developments, store pods, forestry and film schemes.
Quite rightly the FSA has described these as “high risk and often highly illiquid” investments.
Whilst SIPPs provide investors with a greater degree of investment control and choice, such unregulated investments are usually to be avoided.
I guess in an environment where low returns and traditional equity and property losses have taken place it is to be expected that some consumers will search out the prospect of high returns.
But frankly conventional authorised and regulated funds can deliver pretty much what ever the SIPP consumer wants.
Worryingly it is less about the investor choosing these investments and more often being encouraged by the promise of greater returns.
If a SIPP investor wants unregulated investments then why not go for commercial property in the UK or quoted individual stocks and shares and even private company shares as available alternatives?
If you are encouraged to move from a conventional personal pension plan, or even an ex-employer’s pension scheme, into a SIPP that may be all well and good. But if the adviser is encouraging you to invest in unregulated collective investment schemes or esoteric investments like those listed above please do one thing “just say no!”
Two things a disappointing about this regulatory warning.
The first is that there are still advisers out there who are taking actions that are likely to damage further the brand of being an IFA.
It is highly likely that because the advice to move to a SIPP is an authorised and regulated activity (and this is confirmed in the FSA warning) further liabilities are ultimately going to fall on the Financial Services Compensation Scheme (FSCS).
The FSCS is then funded by those advisers who remain in business and kept their own clients well away from these investments.
The second thing is that this has been taking place for quite a few years and it is a shame that it has taken the regulator until now to take action.
I was going to say a question of closing the stable door after the horse has bolted, but unfortunately Tesco has monopolised all horse based puns this week!
Photo credit: Flickr/SuffolkKev
