IFAs could be inadvertently misleading their clients by telling them they cannot hold protected rights in a Sipp, according to Merchant Investors head of compliance Tim Fox.
It is not possible to hold protected rights in trust-based Sipps but clients can invest this money in insured Sipps.
This was confirmed by the Department for Work and Pensions in December 2005 but Fox says this fact is still being overlooked by many in the market.
He says protected rights is one of the main income streams in his firm’s insured Sipp.
Fox says IFAs who are unaware of the rule may be breaching TCF rules and could be targeted by the FSA, particularly when Sipp regulation comes into force in April.
He says IFAs with their own trust-based Sipp are playing a dangerous game. “IFAs which offer their own trust-based Sipp will have an even greater duty of care not to mislead customers about the ability to self-invest protected rights.”
Fox says IFAs specialising in commercial property Sipps are vulnerable as self-investing protected rights can significantly increase the amount to invest – protected rights monies plus 50 per cent additional borrowing.
Hargreaves Lansdown head of pensions research Tom McPhail says: “Providers should be wary of trying to tell IFAs how to do their job. There are many factors when investing protected rights, including cost and admin.”