I have been sent thousands of mailings over the years promoting unregulated collective investment schemes, ranging from South American ostrich farms to student accommodation in Newcastle and care homes in Bournemouth.
Some offers are attractive, while others make the hairs rise on the back of my neck as the inherent risk is so high. I believe any investment that is not regulated should not be promoted by financial advisers to clients in this modern era of clear and transparent disclosure.
The regulator has now got its teeth into the sale of Ucis, and a simple search on the Money Marketing website reveals that one adviser was fined £350,000 for promoting unregulated investments to retail investors.
In this case, 800 people between them invested £30m in unregulated property investments in Croatia, Bulgaria and Montenegro that subsequently failed. The Financial Services Compensation Scheme will inevitably pick up some of the investors’ losses and this will be paid for indirectly by other advisers. This, in my mind, is unfair.
Why must the entire sector bail out the clients of greedy advisers who are hunting down high commissions from unregulated schemes? Advisers can choose from over 5,000 regulated investments to match a client’s risk profile. Even Nest has exposure to emerging markets through its default Retirement Date Funds, although this makes me nervous as the unadvised tend not to understand the volatility and risk inherent in emerging markets.
One thing that is certain is the demand for Sipps will increase from next year as those at retirement delay drawing down their retirement fund and instead invest their uncrystallised savings.
The capital adequacy rules for Sipps have been announced and will apply from September 2016. There is to be a capital surcharge made if non-standard assets are held within the Sipp. The list of standard investments can be found on the FCA website.
UK commercial property (which can be realised and sold within 30 days) is to be a recognised asset class when held within a Sipp, having been omitted from the list of standard assets in the initial consultation. I welcome this inclusion as analysts are very upbeat about UK commercial property investment.
Meanwhile, Gary Barlow was advised in 2012 to invest in a tax avoidance scheme with other Take That band members. They invested close to £26m in a scheme run by Icebreaker Management. HMRC said: “We do not accept the Icebreaker tax avoidance schemes have the tax effects their promoters claim.” The Icebreaker fund is still available and is marketed as an LLP with a £200,000 minimum investment and offers competitive introductory commissions to IFAs and professional advisers.
My advice to all financial advisers is to check the regulatory status of all investments and get a second opinion on the tax treatment if necessary. If the product or commission seems too good to be true, making incorrect recommendations could result in the end of your advisory business and the loss of your client’s money.
Kim North is managing director at Technology and Technical