There has been a sharp rise in the volume of unsolicited calls promoting unregulated investments, according to the Financial Conduct Authority (FCA) who concluded that individuals over age 55 are most at risk.
The truth is that many of these unregulated investments were previously promoted as assets capable of being accepted by self-invested personal pensions (SIPPs) and it was through the intervention of the FCA, through their thematic reviews and actions subsequent, that have closed the door to SIPP investment and pushed the problem down the line to where there is no regulated body able to offer resistance.
The FCA’s remit was that any SIPP provider, wishing to continue to operate in the non-standard asset category, must have robust systems and procedures in place to verify the asset is suitable to be held within its book of business.
For several firms, the cost of resourcing to meet the regulator’s requirements was deemed as a step too far and as a result have changed their propositions so as to no longer accept the asset class.
While welcome, from a perspective of ridding the industry of future unwelcome publicity as a result of some previously failed investments, in some respects these actions may have “thrown the baby out with the bathwater”.
Supply and demand
There are still some perfectly acceptable non-standard, unregulated and esoteric assets available and this is evidenced by the continued demand we see as a provider who are still prepared to consider these assets.
With this continued demand we have seen that with fewer SIPP provider’s accepting this type of asset, more and more investment opportunities are crossing our desk.
While a good number of these do pass our scrutiny, a good number do not. Aside of the few that do appear to be scams, a SIPP provider has to undertake research on the proposals to ensure that it does meet other criteria such as liquidity and existence of a secondary market.
What is clear is that it takes experienced individuals to undertake this significant due diligence, to drill down past the glossy headline statements to the nuts and bolts to find out exactly how the investment works, how good title can be obtained and who might be the counterparties involved in or related to the investment.
These investigations take time, in some instances up to a month where third party involvements are required.
With these gatekeepers, it is no wonder that scammers have now turned their attention to individuals now able to access their pension funds in full giving them access to large sums of money, most probably for the first time in their life.
Many of these individuals are not sophisticated or even remotely experienced investors and with investment markets having been volatile in recent years and with conventional cash and bond yields at all-time lows, the attractions of the headline returns purported by these investments is obvious.
The recent bad press surrounding exit fees and the non-transparency of the older pension contracts most likely held by the over 55s might also be a driver for individuals to encash pensions for the promised gold at the end of the rainbow.
While the benefit packs will mention a warning to look out for scams, when issued by the current pension provider, they could be regarded by the uninitiated as self-serving and as a means of retention of funds.
Once monies are in the hands of the individual, there is no regulated party able to intervene or warn about the potential downsides to the investment. We have heard the promoters warn against verifying through an independent adviser because “they are bound to warn against it because they can’t earn any money from it if you do it yourself”.
There needs to be a more public independent awareness campaign aimed at this target audience who do not understand the risks inherent in unregulated investment nor the skills or inclination to undertake the in-depth analysis even if they did.
Martin Tilley is director of technical services at Dentons Pension Management
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