Green is good?
"Eco-investments" have seen a big increase in popularity recently, partly driven by frustration at low returns on traditional investments and partly by the wish to do something good for the planet and earn money at the same time. Whether its forestry, farmland, bio fuels, carbon credits, wind turbines or solar panels, there's a big choice out there and many SIPPs have bought into the idea.
Worries have started to surface though about whether some of these investments are genuine, and regulatory interest seems inevitable. A leading newspaper ran a front page article recently on police investigations into eco-investments and if you Google "eco investment scam" you'll get several interesting articles to read.
I think this has a big impact for SIPP providers as the FSA expect us to carry out suitable due diligence on all investments. Checking out an investment in, say, trees in Central America where the SIPP funds are transferred to an offshore company and the documents are flimsy is near impossible. Investors take a huge leap of faith in making an investment like this and hopefully most are genuine, but how can a SIPP provider tell without spending a huge amount of time looking into it?
Let us be clear on the regulatory position. The role of the SIPP provider has changed and the days of "if HMRC allow it so do we" are long gone with the duties of a SIPP provider extending to issues of TCF and appropriateness. For example we were presented with a "safe" looking investment which passes the HMRC test , a very solid looking eco investment through a UK company, only to find that despite trading since 2009 the company has not filed accounts and a winding-up petition was issued earlier this year. Hardly reassuring!
It's no surprise that sensible SIPP providers are backing away from this type of investment. Our own standard response is to say no, not because we're inflexible but because we do think some of them will turn out to be bad news, and that's going to have a knock-on effect for the SIPP providers which allowed them.
We are well equipped to guide you and your clients through this process and would urge caution if you believe that "ABC SIPP Co" will deal with these sort of investments without asking any questions. Flexibility is all well and good but you and your clients might live to regret it. .....