There is nothing wrong with a Sipp in itself. It is just a tax wrapper, with the obvious advantages of tax efficiency and flexibility. It is what is held in it that counts. That has been found wanting in recent years.
In its plan and budget for the year ahead, released last week, the Financial Services Compensation Scheme once again pointed to esoteric, high-risk investments being transferred into Sipps as a key driver of the heightened levies advisers are paying. The verdict makes for unpleasant reading: property developments in the Caribbean, oil plantations and storage pods are being pushed on unsuspecting pensioners, and good advisers are footing the bill for the misselling.
There is hope on the horizon, however. The FSCS is once again capping what life and pensions advisers will have to pay, before any additional claims get paid by other parts of the industry. More importantly, it has revealed a renewed focus on making recoveries from operators themselves, and is letting Sipp operator failures fall on the investment providers themselves.
Fortunately, it appears that its recoveries won’t be limited to Sipp operators, but that the FSCS is also willing to wield its legal powers against the marketing companies and lead generators packaging up the dangerous Sipp investments for IFA consumption and paying them handsomely for the privilege.
It is a step in the right direction while we still have so little certainty over how many Sipp claims are yet to rear their ugly heads.
Advisers will never get the white-list of products they want. It is simply too much work for a resource-stretched FCA and opens the door for regulatory arbitrage, with armies of consultants designing products to meet the letter of the rules, not the spirit of them.
As Informed Choice managing director Martin Bamford notes in his column later this week, while we have no firmer regulation on the kickbacks that advisers can accept from unauthorised introducers, cutting out unsuitable Sipp sales is down to culture.
How many ‘advisers’ will continue to flog dodgy Sipp investments when no one is watching, when the moral imperative is on them alone to do what is best for the client but the financial incentive says take the bet?
In a post-freedoms, low-yield era when clients are demanding flexibility and returns, it is not hard to see why the companies running the unregulated investments are so keen to put them in front of as many advisers as possible. The sad truth is that it is the most vulnerable, least sophisticated investors who are most at risk from predatory advice.
It remains up to both the FCA and the advice profession to do what is within their powers to educate the public on the dangers and to make sure as few IFAs as possible succumb to the temptation of snake oil salesmen.
Justin Cash is the editor of Money Marketing. He can be found on Twitter @Justin_Cash_1