A large majority of advisers have called for a ban on both unregulated investments in self-invested pension schemes (Sipps) and unregulated pension introducers, recent research has found.
A study from CoreData surveyed 350 UK financial advisers and discovered that 71% think the FCA should ban unregulated investments in Sipps.
Some 86% also want the regulator to ban unregulated pension introducers. Advisers serving the mass market feel particularly strongly about these issues — 77% think unregulated investments should be banned and 94% call for a ban on unregulated introducers.
Additionally, half (50%) of advisers said the April 2021 ruling against Carey Pensions, now known as Options, has made them more cautious about non-standard/high risk investments in Sipps, and 65% think the ruling against Carey will result in less choice in the Sipp market.
In the case, the court of appeal sided with claimant Russell Adams who accused Carey Pensions of using an unregulated introducer to facilitate investments in storage pods.
The majority (83%) of advisers believe the regulator should introduce a list of prohibited Sipp investments, this is up from 76% in CoreData’s 2020 study.
But, despite the unease over high-risk investments, 31% agree non-standard assets have an important role to play in Sipps, while 41% are neutral and 28% disagree.
No surprise
International Adviser reached out to industry players to understand the implications that the suggested bans may have on the sector.
David White, managing director at QB Partners, said: “It comes as no surprise that UK advisers wish to see this type of activity banned as it causes financial harm to consumers and reputational harm to the financial services industry. Unregulated introducers are not necessarily a bad thing.
“There are many examples of professional introducers who, although they themselves are not regulated, wish to secure the best outcome for a client or contact by introducing them to an appropriately regulated adviser in order that the client obtains the most suitable advice. What is important there is that the introducer has no undue influence in the outcome of the advice.”
Andrew Tully, technical director at Canada Life, added: “It’s important to recognise that many Sipps currently don’t allow unregulated investments to be held. Unregulated investments have caused problems over the years and resulted in complaints, issues for customers, and a hit on the reputation of the pensions industry.
“Banning them seems a reasonable step. One simple option would be for the government to set out clearly what is, and what isn’t, an allowable investment – as was the situation before 2006.”
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “There are powerful benefits to investing in regulated investments such as having access to the Financial Services Compensation Scheme (FSCS) and the ombudsman. More needs to be done to highlight the fact that if you invest in unregulated assets, then these protections will not be on offer.
“However, it is also worth saying that high risk investments aren’t inherently bad, but they need to be responsibly promoted. Anyone looking to invest in these areas needs to understand the risk they are taking and make sure the investment meets their needs.”
Complaints
CoreData’s study also found 57% of advisers think consumers should not be able to purchase Sipps without taking advice.
This increases to more than two-thirds (68%) of mass market advisers.
Looking ahead, 46% believe the number of Sipp-related complaints will increase over the next 12 months. While 79% think there will be increased regulatory scrutiny of Sipps going forward, and 60% expect the market to consolidate over the next year.
Jessica List, pension technical manager at Curtis Banks, said: “Sipps are designed with flexibility in mind, and for some clients that will mean investing in non-mainstream assets. We would agree with the 31% of advisers who thought that there is a place for non-standard investments in pensions, when they are available to the right clients in the right circumstances, as part of the right financial planning process.
“However, it’s also important that advisers and providers apply stringent due diligence checks and have robust controls to make sure that the assets they allow are suitable as pension investments, and that they do not allow unduly risky investments that could in turn put a client’s pension savings at risk.”
‘Few bad apples don’t spoil the bunch’
Becky O’Connor, head of pensions and savings at Interactive Investor, added: “The self-invested personal pension market can, generally speaking, be split into two: Sipps that allow unregulated investments and those that don’t.
“The type of investments in Sipps operated by DIY investment platforms like Interactive Investor are the same type of investments you can put in an Isa: investment funds, trusts, ETFs and publicly-traded stocks and shares. This type of Sipp is different to the kind that allows more esoteric, unregulated investments. It is this latter kind where care needs to be taken by investors, who need to understand the risks. There is no doubt that this area needs to be closely watched by the regulator.
“But equally, it’s important that a few bad apples don’t spoil the bunch. There needs to be more awareness that not all Sipps are created equal and while a minority offer unregulated investments, those available through platforms such as Interactive Investor do not.”
Tom Selby, head of retirement policy at AJ Bell, said: “The fact that financial advisers feel so strongly about banning unregulated investments in Sipps is one of the reasons that the majority of assets held in Sipps will be in regulated products or held on a recognised stock exchange.
“In addition, the FCA’s capital adequacy requirements mean firms administering high risk, unregulated investments in Sipps now have to hold more capital on their balance sheets and this has led to many Sipp operators restricting the types of investment they will allow in their products.
“There have been a number of high profile court cases that show the consumer harm that can be caused by unregulated investments being introduced by unregulated brokers and it’s understandable that many advisers are now taking a cautious approach to high risk Sipp investments.”
