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Fear of failure on Sipp due diligence

Sargisson: Contamination concern

James Hay managing director Tim Sargisson claims that a lack of due diligence among smaller Sipp companies risks damaging the Sipp brand.

He says underperformance of mainstream assets has led to a surge in demand for esoteric investments within Sipps. He claims many smaller players will be unable to cope with the amount of work involved in vetting investments, which could lead to unsuitable investments being allowed.

He says: “We have a very large team of experienced people to look at these investments and we are being swamped with investment requests.

Now if you are a small Sipp provider, I am not sure how you can do the due diligence on those investments.

“I have concerns that the Sipp brand or the Sipp name could become contaminated because it is associated with all manner of questionable investments. You do not want Tony Hetherington popping up in the Mail on Sunday asking, why didn’t the Sipp provider warn clients this was unsuitable?”

Sippchoice managing director Hyman Wolanski says due diligence can be hard to get right but adds it is bigger companies that fail as they do not have the flexibility to cope with investors’ demands.

He says: “It is a big concern for the big providers because they cannot do it properly. They are not geared up for less straightforward investments.

They are much more sausage-machine-type operations.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. “why didn’t the Sipp provider warn clients this was unsuitable?”

    Since when was it the job of the SIPP provider to advise the client on the suitability of an investment?

    Surely all the provider needs to do is ensure that it is allowable under SIPP rules and will not breach taxable property rules?

  2. Pension man is quite correct in that as long as an investment in ‘allowable’ under the HMRC rules, then it is in theory no business of the SIPP Provider…. its something between the client and his IFA.

    From James Hay’s comments I guess that their ‘SIPP’ is really a PPP with extras, written under a master trust and therefore a ‘sausage machine’ operation….. if a SIPP really is a SIPP, written under an individual trust then even the investments which might sail close to the wind re allowable investments should be ok, as any unauthorised tax charge levied would be on the individual’s SIPP only…..and on the individual’s head be it!

  3. Tony Hetherington 14th October 2010 at 7:37 pm

    I can easily imagine circumstances in which an investor finds out too late that his land banking investment, which he was sold as ideal for his Sipp, is actually part of an unauthorised Collective Investment Scheme and that the vendor made false claims and has vanished or is about to be shut down.

    The investor is unlikely to have heard of a CIS, let alone the relevant rules. But he might reasonably expect any Sipp adviser to raise the question before it is too late.

    Aside from this, Tony Hetherington is seriously concerned that equities in a Sipp are treated under FSCS rules as exactly the same as any speculative equity investment and subject to the same compensation ceiling.

    Should we wait for the first big Sipp-provider collapse to find that investments were not properly ring fenced, and that people approaching retirement have lost a pension pot that they cannot replace? Or should the FSA change the rules? What does the industry think?

  4. Dear Mr PensionMan
    I am sure you are fully aware of last years FSA sipp operaters thematic review – the factsheet issued as a result of that review contains teh follow statement.

    Although the client’s advisers are responsible for the SIPP investment advice given, as a
    SIPP operator you have responsibility for the quality of the SIPP business you administer.
    Basic measures you could take include:
    making sure that the adviser is FSA authorised and • has the appropriate permission to carry out
    this type of advice;
    • agreeing formal terms of business agreements with advisory firms;
    • gathering and analysing management information, tracking where your business comes from,
    together with indicators as to its suitability for clients; and
    • putting in place procedures and controls to identify possible instances of financial crime and
    risks to clients, such as unsuitable SIPPs and investments.
    You should act upon the information provided to protect consumers and to prevent the
    reputational risk to your firm that facilitating unsuitable SIPPs would bring.

    fulldocument available on the fsa website, but i hope it helps and shows why these 2 industry gents have such strong views on this subject.

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