Regular internet users will know what a forum is – anyone can join and ask a question and then wait for an answer. In our website’s case, the questions can vary enormously and range between queries on the best flight to Denver to quite complicated financial issues.
Luckily, many of those who take part in the forum are quite knowledgeable, so almost no question goes unanswered. Yet there was one last week from a user of our site that knocked me for six.
Here it is: “Hi. I have recently set up a Vantage Sipp as my pension, although have yet to choose which funds to infest in.
“I am 34 and was wondering where I can find some basic unbiased info on which funds I should be looking at to start with. I just need some pointers as there seem to be so many options to choose from.
“I reckon I would start with a couple of high-risk funds, a couple of medium-risk and then some low-risk. Any ideas where I can get this info from? I just need to make a start. I don’t have a lot of money and so want to try and do this myself, I am a dunce when it comes to shares and fund info, so would need real basic info. Any tips?”
My reply was broadly as follows: “Hi there. You’ll forgive me, I hope, if I say my personal feeling is that you should not be using a Sipp to invest in yourself – especially if your starting point is that you know very little on the subject. Sorry to sound brutal, that’s just my opinion.
“To ask for forum members to give you details of ‘a couple of high-risk funds, medium, etc…’, even if you are going to research them yourself afterwards, is financially not very wise.
“My strong suggestion is that you contact either the good people at Hargreaves Lansdown, the financial advisers with whom you have started your Vantage Sipp, or you should choose another good financial adviser.”
Several days after I replied, the chap had not come back to me so we will never know what he did in the end but the whole experience has left me with a bad taste in my mouth.
What we have here is a fellow without a shred of knowledge of what he is doing, setting up an investment wrapper through which he proposes to randomly buy a selection of investments suggested to him by people he does not know and has never met. His definition of “high”, “medium” or “low” risk is completely unknown.
Now, I have always been a supporter of execution-only services and I also fully understand the arguments over caveat emptor, so please – those of you who might be thinking of replying along similar lines – please don’t.
Nor is this simply a pop at Hargreaves Lansdown, which cannot be expected to know what each of the myriad punters that it comes into contact with at any one time is up to.
But I do not think it is a coincidence that this guy ended up with a Vantage Sipp. The product has been extremely well marketed and umpteen colleagues have commented in their newspapers on the fact that it is among the cheapest, if not the cheapest Sipp wrapper on the market.
With that kind of publicity, there are bound to be a few ignoramuses who end up getting burnt – except that I have a strong hunch it will not just be a few.
One of the facts of the residential-property-intoa-Sipp frenzy throughout most of 2005 was that a number of companies, most notably Standard Life but others also, successfully vacuumed up many billions of pounds into their own wrappers. According to Mintel, the Sipp market grew by a staggering 1,000 per cent between 2004 and 2005 alone. It is now worth anything up to 35bn.
That huge marketing drive has continued to this day. In the three months to the end of March this year, Standard Life alone sold 1.2bn of Sipps, up by 117 per cent on the same period last year. Total Sipp funds under management at Standard Life grew to 5.3bn.
James Hay, part of the Abbey group, has 11bn in Sipp funds under management and claims to represent a third of the UK market. It too has grown spectacularly.
Ironically, if tens of thousands of these punters are really lucky, the best that can happen to them – apart from the heavy set-up and transfer costs into these Sipps – is that, by and large, their investments will simply have been moved over into a new wrapper but will continue to be managed in much the same way as before. They will have lost a fair amount of money in charges but their retirement plans will hopefully not be badly damaged.
Yet I cannot help feeling that, for a significant minority, the experience will be far harsher. They will have fallen for all the ballyhoo back in 2005, reinforced last year and this year but will discover some time in the next decade or two that it was the wrong course.
Who will be to blame for all this?
Nic Cicutti is the editor of moneysupermarket.com. He can be contacted at: firstname.lastname@example.org