Intelligent Partnership wrote an article for Professional Adviser. Click here to see the original page
Well, that was a difficult year.
There were a number of issues, most notably in the purpose-built student property market. Some big names – who claimed to be performing well – suspended redemptions from their student accommodation fund, citing liquidity issues.
Perhaps a decline in investment in the wake of new FSA restrictions on UCIS investment caused the liquidity crunch.
In fact the UCIS [unregulated collective investment scheme] sector really suffered overall, with a number of advisers fined by the Financial Conduct Authority (FCA) in relation to mis-selling.
In June the FCA issued its policy paper on UCIS – PS13/03. The new policy, which came into force on 1 January, restricts investment in UCIS schemes and ‘close substitutes’ or ‘non-mainstream pooled investments’ to high net worth and sophisticated investors.
This significantly narrowed the market of potential investors, although a number of schemes claim that their structures do not fall into the above classifications and are therefore beyond the regulator’s reach.
The vast majority of advisers no longer touch these unregulated schemes, but they still have a route to market through unregulated sales agents and direct sales.
More Bad News
Caribbean resort developer Harlequin continued to court controversy in the press. The UK based sales arm, Harlequin Property, filed for administration in April and in September Harlequin announced plans to place its land in trust for investors and restructure the scheme.
More significantly for the rest of the alternative investment market, the FSA (the FCA’s predecessor) issued two alerts relating to Harlequin in January 2013.
The second alert made it clear that advisers who were transferring client’s pensions into a SIPP had to consider the merits of the investments they were intending to make once the SIPP was set up.
Many alternative investment products which had been reliant upon clients investing via newly set up SIPPs now found this source of sales drying up. Mindful of PS13/03 advisers could no longer recommend a SIPP transfer if the money was going to end up in a UCIS or close substitute. [You can read all of IFAonline’s Harlequin coverage here].
RDR
The Retail Distribution Review was a bit ambiguous when it came to alternatives. Of course it stipulates that in order to be considered independent, advisers must be able to consider the whole of the market for their clients. Did this include alternatives? Some alternative investment providers suggested that it did, but in reality the regulator was pretty clear.
Advisers should not be considering non-regulated products, UCIS or other non-mainstream pooled investments unless they have clients who they may be suitable for (FSA guidance Aug 2011).
If they do have client within their client bank who might be suitable, independent advisers should be able to recommend alternatives.
An interesting tangent to RDR and alternatives was to do with adviser charging.
Now that clients had visibility of what they were paying for advice, some advisers felt they needed to do more to differentiate themselves from the competition by offering alternatives – investments that their clients could not find for themselves or spoke to client interests such as ethical or environmental concerns.
Advisers also had to avoid a bottom-up collection of assets approach to investment management and implement top-down, balanced, diverse portfolios for their clients – some of these portfolios included an allocation to alternatives.
So that’s a quick canter through 2013. It’s not been pretty, but things are looking up. I predict some positive developments ahead.