One size fits all?
The subject of a list of approved investments for SIPPs has been doing the rounds for some time and it now looks like it's the popular choice, among SIPP providers at least. We've always had our doubts about it, so time perhaps to explain why.
The problem itself is well known. Attitudes among SIPP providers to non-standard investments vary enormously, with responsible providers like ourselves casting worried looks at the relaxed attitudes elsewhere, an increasing number of these investments getting into difficulty, intrusive interest from the FSA and reports that even the Serious Fraud Office are taking a look at SIPPs.
On the face of it, a list of permitted investments solves the problem and puts us all on the same playing field with clear rules in place. The difficulty is getting a list which covers every situation.
Let's take 2 examples. The first is a sophisticated investor with substantial pension and other assets, who wants to invest a small part of her SIPP into a UCIS. The UCIS is UK based and asset-backed, with a solid structure and monthly dealing, and the client has received professional advice on suitability. We agree to take it on.
The second is an unsophisticated investor with just £30,000 in pensions and limited other savings, who wants to put the whole lot in a UCIS. The UCIS is based overseas, with flimsy documentation and little evidence of where the money would go, and there is no professional advice. We turn this one down, but I know that in many cases the client will go down the road and sign up with another SIPP provider.
Would a permitted investments list deal with this? Well, if it banned UCIS altogether then it would deal with the second example but stop the first one as well (you might be thinking that the FSA are going to ban UCIS anyway, but for the word "UCIS" you could substitute "unquoted equity", "third party loan" and other investments in my example above). If the list does allow UCIS, then it is not really addressing the problem.
I suppose the list could say something like "UCIS but only if HNW/sophisticated investor, full advice given, less than 10% of the SIPP" etc, this might work but it is all getting a bit clunky. The trouble with any list is that it is going to prevent some genuine investments, whilst not being watertight enough to prevent exploitation with inappropriate investments.
Another option might be a smaller number of SIPP providers, all with robust due diligence procedures which can withstand intrusive regulatory scrutiny. The FSA might prefer that, and I'm thinking it might work better as well. Whichever way it goes, a better consensus among SIPP operators on the investments they should be allowing in SIPPs would be a big step forward.