Financial watchdogs are to get to grips with how advice firms deal with customers who want to stake their money in risky investments.
The Financial Conduct Authority is worried that the SIPP pension market is looking like a two-speed market between wealthy investors and other consumers with lower savings who rely on the income they make from alternative investments.
These risky investments include unregulated funds, unlisted bonds and other non-standard assets.
The FCA’s Deborah Jones told the Work and Pensions Committee in Westminster that the regulator plans to review the sector over the next 12 months.
“We remain of the view that there is a place in the market for a wide range of investments, and it is very important that non-standard investments are sold only to those consumers to whom they are suitable,” said Jones, the FCA’s director of life insurance and financial advice.
Quizzed by MPs
“Looking at the high risk investments to revisit whether advisers are taking an appropriate approach is a piece of work we have planned for next year.”
FCA chief executive Andrew Bailey was also at the committee hearing.
MPs quizzed him about how SIPP providers have reacted to a letter he sent requesting to know if they are affected by last year’s Berkeley Burke judicial review.
Hearing the case, the High Court ruled that SIPP providers must check non-standard investments before taking on clients wishing to stake money against them.
Unacceptably risky assets in SIPPs
“We followed up with phone calls to all the relevant firms and some site visits in the appropriate cases, and there is ongoing activity with the firms where we aren’t completely satisfied at the moment that they’re in the right space,” he said.
“It has evolved in two parts, one is what you could call the high net worth sector, and the other is much different, with people using it for much smaller savings and relying on it much more as a source of income.
“We had to catch up with that evolution, it has caused practices to happen that had detriment. We had to clamp down very hard on the practice of putting unacceptably risky assets into SIPPS.”