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Gareth Fatchett: FSA Sipp alerts are long overdue

The recent FSA alerts in relation to Sipp advice were hard hitting. So they should be.

These issues may have slipped under the radar for many advisers who simply avoid unregulated esoteric investments. But those that “dabble” in such investments will have seen their opportunity to advise on them severely curtailed.

The specific naming of an investment, in relation to Harlequin, by the FSA represents a significant departure from normal practice. For anyone reading the alert, the due diligence issues are ones which should have been picked up by any competent adviser long ago.

The wider alert involves a murkier practice of transferring personal pensions to Sipps to invest in Ucis. The transfers in themselves are innocent enough.

However, the adviser involved is referred the client by the sales agent for the unregulated product. At this point the transferring adviser knows only too well what will happen after the transfer has completed.

Many suitability letters we have seen (and we have seen hundreds relating to Sustainable Growth Group, Harlequin and others) makes no mention of the end investment.

The FSA alert makes it very clear that they expect the IFA to consider the end investment. It also makes clear that some IFA firms have already been “neutered” by the FSA.

The liability will fall on the IFAs as they are the only regulated party. The IFAs in question will more than likely close. The FSCS will redress the unsuitable advice and the industry pays. The iceberg in this instance is huge. Way bigger than Keydata, CF Arch Cru or any of the regulated crashes.

What is reassuring is that the FSA haa effectively outlawed Sipp investments into such schemes following a pension transfer, unless there is a very good case for it. It will now be a brave adviser or Sipp provider which allows this practice to continue. The feedback we have received from Sipp providers is that unregulated products will be allowed into their Sipp under very limited circumstances.

We know from our own experience that many SGG clients thought they were investing in a low risk investment.

The conclusion has to be that any advice to enter into an unregulated product has to be high risk, particularly where a pension is concerned. Any business of this type done in the past (of which there appears to be billions invested) will certainly be questionable. The SGG group alone could easily generate over 1000 referrals to FOS.

Do not believe that this end of this. The new “swerve” is to use a Ssas instead of a Sipp to circumvent the regulatory scrutiny.

Let’s hope the FSA is reading this and watches out for the inevitable increase in Ssas sets ups, which are followed closely by an investment in an unregulated esoteric fund.

Gareth Fatchett is solicitor and notary public director at Regulatory Legal Solicitors

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. What I severely hope is that when and if these schemes go bust they don’t end up claiming on the FSCS because the adviser gave the initial advice on the SIPP. I have been warning consumers and indeed other consultants about Harlequin for a number of years unfortunately some consultants decided to get involved with this type of business. I hope they have adequate indemnity insurance to cover their advice as many networks do not cover unregulated investment schemes and I do not see why these schemes should be covered if they have paid no FSCS fees.

    A tightening up of SIPP regulations is well overdue, as is the rules around marketing products and financial advice services, as I always thought that the information provided on Harlequins website was outside of the FSA’s marketing rules.

    When is the regulated going to be ahead of the game instead of always playing catch up after all, I like many competent advisers voiced our concerns directly to regulator over five years ago and they took no action. That is until now after many millions of pounds of clients money have been invested.

  2. What about Rock Acton Gate, this fund is still in administration and clients cannot access their pensions because of it.

    Glad I didn’t dabble in SIPPs they are really only suitable to people who SELF INVEST which is what they were originally supposed to be for, not advisers to move clients into bizarre and totally unsuitable weird funds.

    Has anyone got any data that could be used to compare say the Prudential With Profits fund with the best performing equity funds over say 5 and 10 yrs?

  3. I agree with Ned.

    I think that SIPPs should really be ” what they say on the can” and be for investors that really know what they are doing and are able to make their own investment decisions.

    As Gareth says, this is but the tip of the iceberg.

    Now, what about the offshore firms that are advising on SIPPs? What happens when the wonderful exotic investments that were recommended go pear shaped? I saw a promotion on YouTube recently from a director of a large firm of offshore IFAs that said, and I quote directly from the video , ” …companies aren’t going to be able to fulifll their obligations to their staff…. because of this the UK government introduced something called the SIPP”.

    A lot of SIPP money will be from good occupational schemes with unsophisticated SIPP members. This is a ticking timebomb!

  4. @Peter Herd

    Claims will fall on the FSCS because the FSA makes it clear in their”Alert” that;

    “…. the provision of suitable advice generally requires consideration of the other investments held by the customer or when advice is given on a product which is a vehicle for investment in other products (such as SIPPs and other wrappers) consideration of the the suitability of the overall proposition, that is the wrapper and expected underlying investments in unregulatedschemes”

    IFA recommends a SIPP. Client investe in unregulated investment. complains when the value falls. IFA no longer with permission. Claim falls on FSCS. The rest of us pay!

  5. There are many more IFA’s and mortgage brokers being pulled down off their condescending high horse by the FSA and being closed down than any of these ‘unregulated’ firms. Just becasue you guys spout ‘ oh yes FSA regulated’ means jack all. FSA regulated companies have been committing fraud and mis selling on a massive scale. IFA’s are getting shut down every week. Teapot and kettle I think

  6. @Nick

    I’d hope the FSCS situation might be slightly better than that. They’re a little more precise over whether an IFA is legally liable or not – and FSCS will pay only where there’s a ‘Civil Liability’. Although the circumstances of cases will differ, the loss from a failing investment will not usually have flowed from the recommendation to transfer to a SIPP. Not great for the clients, mind you.

  7. Re: Paul Hycock | 23 Jan 2013
    Someone hit a twitchy nerve there I think. “you guys”?? Been dabling much PH?

  8. The shame about all of this is the collateral damage it does to the SIPP market -as evidenced by a couple of the comments above. I still have a copy of an article written by Nick Bamford for Money Marketing 6 years ago called “the conversion of Paul”. That highlighted how and when SIPPs can be used to the advantage of both adviser and client and is still relevant today.There is also the issue of proportionality – we are talking about investors who make up at most around 0.5% of all SIPP investors. That’s not in anyway to excuse what has gone on – some advisers and SIPP operators have acted disgracefully. However the FSA approved all SIPP operators in 2007 or later – and most of the misdemeanours have been as a result of unsuitable or unscrupulous business owners -who presumably were vetted and monitored.
    At the moment it seems that every story about SIPPs is negative -which is a great shame because used properly and professionally they can provide real benefit.

  9. to Last post | 23 Jan 2013 4:10 pm

    I want to go on record that I have never recommended Harlequin or any other type of UCIS as I feel very angry that I will end up paying for other people’s incompetence yet again.

    Investments into companies and products like this are well beyond the scope of most IFA’s and I cannot see why anybody would get involved apart from commission.

    Thank God the RDR process will bring an end to this type of practice and if it hasn’t then any individuals caught up should be thrown out of the industry. I am fed up of paying for other people’s greed.

    These types of investments should only be used for clients with significant wealth and can prove that they are experienced investor. Most IFA practices would not have the capability to do the level of due diligence necessary on this type of investment. In fact it took me some considerable time to check out the taxable property rules to see whether this investment was allowed within a SIPP and I remain unconvinced. In fact Harlequin themselves say that their scheme has been signed off by the revenue when in fact the revenue never give sign off any such schemes.

  10. When Gordon Brown made his pre-budget review speech in December 2005 he corrected his foolish plans to allow residential property to be bought and held in SIPPs.

    The genie had already been let out of the bag in that a whole new industry had been spawned and the acronym SIPP had been placed at the forefront of many investors’ consciousness. People who should never have been let near exotic investments now had pots of cash swilling around looking for a home far away from the boring protection of insurance company trustees.

    If it had ended there the problem could have been contained but the FSA chose to look the other way. I would like to see a full scale hindsight review of every SIPP case since April 2006 to establish why a SIPP was appropriate for the investor.

    If you howl in anguished frustration at the stupidity of such a review then the case for it is strengthened. To every SIPP provider that has bent over backwards to allow ever more trash to be bought, or has turned a blind eye to the levels of back door commissions being looted from dumb clients, I say “tough!”.

    This has been an inglorious chapter in the history of IFA practice and regulatory ineptitude.

    Time to clean out the Augen Stables.

  11. I reported to the FSA a ‘fractional ownership’ scheme in St Lucia.

    Never heard anything. Maybe all those grads revving it up at regulation towers are acting on info that us ‘advisors’ provide to protect the public.

    To me the whole thing is completely unreg but SIPP trustees are at other ‘tricks’.

  12. This harlequin story has been kicking around since 2010 , and has been reported on by some respected journalists .

  13. Re: Peter Herd | 23 Jan 2013 5:48 pm

    Im sure you have not Peter, it was directed at the other PH, not you PH. An IFA in our part of the world has just shut down before the preverbial hits the fan. Not a moment too soon either. I could never understand how such a lavish lifestyle could be funded, now we know!! Only trouble is now, the rest of us carry the can not only financially but perceptively as well.

  14. Mr Fatchett may make some good points but lets not forget that this is a man who is selfishly out to line his own pockets with as much of a pension members cash as he can to ‘represent’ them.
    A man who has claimed to represent “a vast number of clients” with the “support of the entire SIPP industry” ended up finalising all actions against Harlequin when he completed settlement for ONE client.

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