Putting cash into an unregulated collective investment scheme (UCIS) is too risky for most investors to consider.
The Financial Conduct Authority (FCA) is to investigate the self-invested pension plan market to look at the pros and cons of UCIS, while specialist lawyers warn the investments are foolhardy unless a due diligence team is going through the contract small print with a fine toothed comb.
And, say lawyers, the highest risk lies with SiPP investors because they and their providers do not have the experience or resources to spot the danger signs.
The short term gains are often tempting to investors, says Gareth Fatchett of Regulatory Legal.
His firm has claimed compensation for investors involved in several UCIS, like Arck, Harlequin Properties and Sustainable AgroEnergy.
Warning to SiPP firms
The warning also comes on the back of news that the Serious Fraud Office is investigating at least two UCIS schemes.
“Investors face more of a risk now than ever before when dealing with a UCIS,” said Fatchett.
“Analysing short term gains against long term risk speaks volumes against most UCIS. However, small SiPP firms are receiving around £1,000 a year for these investments and look at that cash rather than taking a long term view.”
Fatchett says he has dealt with many cases for claiming compensation over UCIS, and cannot understand why investors put money into them.
Meanwhile, the FCA has announced a review of the SIPP industry and warned providers who fail to offer customer-centric services will face penalties.
Providers face penalties
The FCA said the inquiry would cover an examination of SiPP operators’ financial resources, the quality of investments SiPP firms allow to operate in their schemes, and operational procedures and controls.
SIPP providers have been warned about the forthcoming review in an email from the FCA.
An FCA spokesman said: “We worded the email quite strongly. The industry has been told we are not happy with the results of an earlier review and that the SiPP industry must work harder to meet the rules and show they are not breaching our requirements.
“If they cannot show they are complying with the rules or that they do not have the best interests of consumers at heart, they will face action.”
The FCA explained that they felt SiPP providers are moving too slowly to meet the recommendations of the earlier review and need to act faster to safeguard consumers by cutting out risky investment options.
