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