Sipps have taken a bit of a beating recently, that much is for sure. They have been painted as a willing participant in the defined benefit pension transfer con.
Trust us, you should ditch the warm comfort of your company scheme for your own flexible pension. Trust us, our overseas property scheme is the only way you can get the return you deserve. All through this glorious thing called a Sipp.
It is only natural that the pension industry has wanted to fight back, and it is unfortunate that the debate has become so polarised. The “it’s just a wrapper” or “it’s what’s in the Sipp that counts” camp can’t seem to find common ground with team “Sipps are unsuitable for the vast majority of clients, period”.
The fact is the market is huge and diverse. The 48 companies, large and small, that we approached as part of the research for our cover story this week are barely scratching the surface of the Sipp market as a whole; reams of niche providers will undoubtedly have escaped our net.
Yet that they fly under the radar should not be taken as evidence of smaller firms’ guilt. Larger providers may well have more repeatable, structured due diligence processes when it comes to taking on new assets. But they are also more exposed to the systemic risk of applying any such process.
Headline figures around the proportion of unregulated assets in a portfolio may not actually paint an accurate picture of how much risk they actually present.
Even within a type of fund like Ucis, the underlying asset classes and investments chosen within them can vary widely from property and land loans to unlisted shares.
Planners must keep a sharper eye than ever on the Sipp provider they choose for their client
A few adviser acquaintances have pulled off stunning feats of growth for clients by dropping significant amounts into unregulated investments. You could see it as a minor financial miracle they got that lucky, or a sign of willingness to take appropriate risks when opportunities present themselves.
Either way, I would hazard a guess that most readers will be happy that all but one of the Sipp providers that agreed to take part in our research reduced their exposure to unregulated investments over the past three years – and that one increase was only because of an acquisition.
That’s not to say advisers are off the hook on Sipp due diligence. Now the market has expanded and diversified, financial planners need to keep a sharper eye than ever on which Sipp provider they choose for their client and document exactly why. With DB transfers still so high on the agenda, it is also imperative to see where all that lovely freed-up cash is being invested.
If providers don’t come together with financial planners to ensure best practice, Sipps may be revealed as the villain of the piece after all.
Justin Cash is editor of Money Marketing. Follow him on Twitter @Justin_Cash_1