The FSA has stepped up its attack on unregulated collective investment scheme sales and raised concerns about Ucis sold within a Sipp.
Speaking at an FSA investment managers and private equity event in Canary Wharf last week, head of savings and investments Linda Woodall said in some cases IFAs have told customers to remortgage their houses and put the money in Ucis.
She warned that others have placed clients in Ucis within high-charging Sipps when they are not the most appropriate vehicle.
Woodall said this lack of concern about the products being recommended “poses a reputational risk to both the IFA and asset management sectors”.
She said 131 Ucis files were reviewed by the regulator in the Summer and in 58 of the files advisers recommended their customers invest or transfer existing pensions into a Ucis within a Sipp.
She said: “To make it worse, the firms involved did not consider, or explain, the implication of costs and charges of the recommended Ucis, and, in a number of cases, it was not evident that a Sipp was the most appropriate vehicle for the customer’s pensions need.”
Woodall said typical Sipp charges can include an 8 per cent initial charge, a 2 per cent annual management charge, a £500 up-front administration charge, a 5.9 per cent transfer penalty and fees of 5.6 per cent.
She said: “These are significant costs, and should be explained to the customer.”
In August the FSA announced it had told 11 firms to stop promoting the products and warned that the providers were using aggressive sales techniques, such as offering trips abroad and high commission.
Meanwhile, Woodall also hinted that the FSA has turned its attention to the marketing of so-called ‘cautious managed’ funds, which aim to reduce client losses in volatile markets by capping equity exposure.
She said: “[Customers] also rely on the clarity and quality of the documentation they receive from both their adviser and the asset manager to make informed decisions. So, for example, to describe a fund as being in the cautious managed sector, without a clarification on the actual risks inherent in the fund, could lead a client to think this is low risk.”