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Sipp euphoria could see rise in misselling

Product providers and advisers should be aware of the heightened risk of misadvising and misselling amid Sipp fervour, warns City law firm Reynolds Porter Chamberlain.

Churning, investing too much into a Sipp, unsuitable alternative investments, residential property and tax avoidance are cited as the five main danger zones by the firm.

RPC partner Charles Suchett-Kaye is cautioning advisers against getting carried away with the excitement surrounding the new pension rules as individuals could make incorrect investment decisions and advisers will be blamed.

He says the FSA is concerned that advisers are recommending switching unnecessarily out of occupational and group schemes into new commiss- ion-bearing schemes.

He says investors could be tempted to invest heavily into a Sipp and, with income tax charges for exceeding the investment limits set at 55 per cent, investors will be worse off than if they held it outside of a Sipp and will ultimately question the advice.

A-Day brings with it the risk of alternative investments through unquoted companies, as does dabbling in residential property without adequate experience, warns Suchett-Kaye. He says the Revenue will be monitoring the new Sipp regime for evidence of tax avoidance.

He says: “Advisers should avoid promoting the use of Sipps for tax rather than pension benefits and make it clear that the Revenue could introduce retrospective regulation removing tax benefits at any time. Given the level of anticipation about the pension regime, advisers may find it part of their job to dampen down Sipps euphoria.”

Tenet Group research off- icer Rory Gravatt says: “One of the main issues is that adv- isers are getting all sorts of ideas when the final guidance around self-invested schemes has not yet been confirmed.

“The biggest issue is property, where advisers will be acting as something of a self-proclaimed estate agent as opposed to an IFA.”

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