SiPP Firms Keep Quiet Over Dodgy Investments

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If you have a dodgy investment in your SiPP pension and the provider gives no warning that you can lose your money, who’s to blame?

Logic would seem to dictate the pension provider has a duty to tell consumers if they suspect an investment is not performing as expected.

But although some providers whisper warnings to their counterparts in other firms, no one is brave enough to blow the whistle, according to financial expert Mike Morrison, writing in Retirement Planner magazine.

In a revelatory article, Morrison reveals some providers do little to screen investments.

Some firms who believe they are ‘quality providers’ pass warnings up and down a private grapevine, says Morrison.

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Secret whispers

But warnings are kept secret because providers fear libel writs from disgruntled investment firms are more trouble than protecting the cash entrusted to them by customers.

Informing HM Revenue and Customs (HMRC) is also a non-starter because most providers claim no action is taken if they pass information to the tax man.

The result is the adviser who recommended the investment to the customer ends up taking the blame – while the customer may have no financial protection for losing thousands of pounds in unregulated investments.

Some SiPP providers admit they may have realised something was wrong with some investments after a few months, but admit they told no one and their customers either lost money or had to make a claim against their adviser or from the Financial Services Compensation Scheme.

Morrison’s article also claims one advice firm with ‘just a couple of advisers’ arranged 2,000 SiPPs in two or three months without raising the attention of a regulator.

Lack of protection

The firm went to the wall facing a flood of compensation claims worth millions of pounds.

The directors were banned and fined for giving poor advice by regulator the Financial Conduct Authority (FCA).

Yet no one warned consumers of the risks in investing in a SiPP with this firm.

New rules coming in September will require SiPP providers offering non-standard assets to hold more cash in reserve.

The object is to price smaller, low quality SiPP providers out of the market by raising the entry barriers for them.

As a strategy, time will tell if the measure works.

Until then, consumers still have no watchdog with teeth safeguarding their retirement savings and only themselves to blame for following bad advice.

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1 COMMENT

  1. Providers may become concerned about certain investments after they have been accepted, which may have passed appropriate due diligence (appropriate at the time of accepting). However, before providers can contact a customer and highlight potential issues relating to an investment they need some reasonable evidence or strong grounds for suspicion that the investment may not be quite what it first appeared.

    Most UCIS investments for example are difficult to value and are often illiquid. Therefore, providers are reliant on periodic valuations, which may or may not be provided even when chased. This should of course cause some concern and will inevitably be highlighted to customers at least annually, but this in itself is not enough to question the validity of an investment. If investments are dodgy and potentially worthless, it’s highly likely that the investment companies or third parties go to ground, making it extremely difficult to evaluate the likelihood of any return. The provider may have lots of concerns, but apart from informing the customer they are unable to obtain valuations, or other key fund information, they can’t suggest the investment is dodgy or that there has been any potential misselling without clear evidence.

    The providers are often stuck in the middle powerless to assist the customer.

    There are however some providers that should have been fully aware that they were pulling in high numbers of new clients all investing in the same unregulated/high risk funds pushed by a handful of cowboy advisers and any reputable provider should have questioned the quality of this type of bulk new business (Harlequin for example) and been quick to reject it. By the same token, the FCA had sufficient sales data available to have identified clear red flags which should have been investigated promptly rather than reacting after the horse had bolted.

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