I noticed recently that one of my followers on Twitter was expressing an interest in using his pension fund to invest in ‘Green Oil’.
What is Green Oil and does it ever make a good investment?
Green Oil is the generic term used to describe the oil obtained from certain fast-growing plant seeds. These include Jatropha, Oil Palm, Millettia and Silverleaf.
The Green Oil can be used as a bio-fuel, but also has other (less lucrative) uses including animal feed and organic fertilizer.
It is not a new technology. Green Oil has been used for hundreds of years, albeit on a small scale for local needs.
The interest in Green Oil production from larger scale commercial plantations has grown in recent years due to the higher price of more traditional energy resources.
Increased demand for energy globally and dwindling fossil fuel reserves is making the argument for Green Oil production more attractive.
Is Green Oil a good investment opportunity?
Our research into Green Oil as an investment suggests it is about as close to a scam as an investment is possible to be, without being outright illegal.
We can understand the longer-term arguments for alternatives to conventional fossil fuels. The world needs to invest in these new technologies to ensure that industry can continue producing, homes can be heated and wheels can keep turning.
It is the typical structure of an investment in Green Oil that is most problematic.
These investment schemes are never regulated by the Financial Services Authority. As a UK investor, this means you receive zero protection when you make an investment. There is no recourse to the Financial Ombudsman Service (FOS) and no cover from the Financial Services Compensation Scheme (FSCS).
If an UK regulated independent financial adviser (IFA) made the recommendation to invest in one of these unregulated investments, their advice is however subject to UK regulations and you may have a valid claim against that adviser for unsuitable advice.
The double or triple digit returns often touted by the promoters of these investment schemes suggest either an ultra-high degree of investment risk, comparable with betting the value of your pension fund on a nag at the 4:10 at Kempton Park, or simply a misleading promotion.
One problem with these Green Oil investments is that they are often promoted as ‘HMRC approved’ for the purposes of investing in a Self Invested Personal Pension (SIPP). This statement is close to meaningless.
HM Revenue & Customs allow SIPPs to invest in a very wide range of investments. The fact a specific type of investment is available to invest in a SIPP does not confer any suitability on the investment itself.
In fact, we feel that some unregulated investment schemes are promoted as SIPP investments in order to gain access to money within pension funds. They might consider it easier to convince an investor to part company with the less tangible money in their accumulated pension funds than cash in a bank account.
This is such an issue that Citywire is reporting this week that the Financial Services Authority (FSA) is to examine the due diligence requirements placed on SIPP providers, amidst fears that they are increasingly being used to invest with unauthorised offshore advisers.
If Green Oil is the wonderful investment opportunity it is touted to be, then investing in an unregulated and complex offshore structure is not the way to go.
Stick instead to UK authorised and regulated collective investment funds with exposure to this type of investment. That way you get the security of a regulated UK investment structure and exposure to the desired investment type, without the legal, custody, liquidity and regulatory risks of the dodgy alternatives.
Always remember the golden rule of investing; if it seems too good to be true, it probably is!
Photo credit: Flickr/marc falardeau
