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Investor guidelines for ‘SIPPs’

Thursday 1st May 2014

By Ian Stott, Client Services Director at TCC
What is a SIPP
A Self-Invested Personal Pension (SIPP) is a type of personal pension plan that enables a consumer to make their own decisions about where and how the money they pay into their pension is invested.
Why have they come under regulatory scrutiny recently? 
In 2007 the UK government wanted all pension products to be subject to the same regulation and fall under the same regulatory regime.
Since then, following various reviews of the SIPP market, the UK Financial Services watchdog, the Financial Conduct Authority (FCA) has had increasing concerns that some SIPP operators have not been fully aware of their regulatory obligations, have not been acting in the best interest of their customers and as such pose a potential threat to consumers.
In the last week, the FCA has released an alert to the marketplace, raising their concerns that firms are advising on switches and transfers to SIPPs without adequately assessing the whether the underlying investments held within are suitable for the consumer.
The FCA is currently taking action against several firms and advisers involved in the sale of SIPPs; some SIPP operators have been banned and many more are coming under increased scrutiny.
Can anyone be recommended to invest in a SIPP?
A SIPP is unlikely to be a suitable option for the majority of consumers as invariably consumers have limited financial capability that would not allow them to make appropriate decisions about what investments their SIPP should hold.
In addition, many of the investments available through a SIPP are non-mainstream which means that they carry a high proportion of risk and are often unregulated such as overseas property developments. These are unlikely to be suitable to the average investor as they would be deemed to be a high-risk investment.
How do I know if I have a SIPP – should I be concerned?
If you do not know what a SIPP is, or know whether or not you have one, the chances are that it is not suitable for your requirements. If you have been advised to switch your existing, or old, pensions, into one plan, it may be worth considering whether or not this switch was made in your best interests.
For the vast majority of consumers, personal pensions (including stakeholder pensions) provide perfectly good access to a variety of different funds that can be tailored to suit an individual’s risk profile – with potentially significantly lower costs and charges than a SIPP.
Should I be concerned about the investments held in my SIPP?
As mentioned above, many SIPPs hold investments that are not suitable for the majority of consumers, including overseas property developments or unregulated collective investment schemes (UCIS).
There is strict criteria surrounding what type of individuals can be recommended a UCIS.  If you think you may have UCIS in your SIPP, you should ask the firm that sold you the investment, to explain which eligible investor group you fall into.
Certain investors will be categorised as ‘sophisticated’ (someone with extensive knowledge and experience of investing) or ‘high net worth’ (earning over £100,000 or having £250,000 in investable assets). Investors, should ensure that they are comfortable that they have been correctly certified as falling into one of these categories.
Advisers should be able to explain the level and degree of risk associated with their investments and detail why the investment is suitable.
What questions should investors they ask their adviser if they are recommended to switch to a SIPP? 
Investors should be wary and cautious of advisers who are not able to readily articulate (without jargon) the details/risk/impact that holding a SIPP will have on their retirement objectives.
Investors should ask what investments are held in their SIPP and what their risk exposure is, as well as what the impact will be on their portfolio and overall investment objective.
Investors should also confirm with their adviser what charges there are, what the rate of return is and whether this is ‘actual’ or ‘targeted’.
What should do if I am not happy with my SIPP?
Investors with SIPPS should contact their advisers to enquire as to the content of their investment portfolios. Investors not happy with their SIPP, especially if the level of risk they are exposed to is high, should ask what the implications would be of re-structuring their arrangements to better reflect their requirements and the level of risk they are prepared to take.
If an investor believes that a firm has advised a SIPP that is not suitable, or where the underlying investments are too risky with the risks were not fully explained, they should make a complaint to the firm involved.
Firms should have procedures in place to resolve matters relating to existing investments. They should be looking to address cases where unsuitable advice was given, and take remedial action where appropriate.
Investors should contact the FOS and FSCS if things have gone wrong, and seek independent professional advice if they are in any doubt about the potential risk and returns involved.

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Editorial Contact Details - Conor Shilling
0845 672 6000
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