Intelligent Partnership wrote an article for Professional Adviser. Click here to read the full article
In our previous article we highlighted that there is a case for including esoteric investments in client portfolios where suitable as they can be good diversifiers that offer the prospect of uncorrelated, above market returns.
And since the market crash of 2008, rather than seeing a flight to safety – into strong defensive stocks – we have actually seen something of a flight to esoteric alternatives as investors look for less volatile sources of growth and look to ‘real’ assets to combat the impact of inflation.
However, it is important to assess which esoteric investments are viable opportunities as they are often in the non-regulated space – and therefore we have to sort the wheat from the chaff before even considering them for clients.
So here I will outline some of the key considerations to bear in mind when assessing esoteric investment opportunities.
Once again, by esoteric investment I am not referring to any form of collective investment scheme – be it regulated or unregulated. I am referring to directly held assets, non-regulated investments into farmland, forestry, gold and other precious metals, property and other tangible assets.
What’s Different?
When assessing non-regulated investments, it is important to proceed with extreme caution as neither the product providers nor the distributors are regulated and scrutinised by the FSA. This means there are three key differences with regulated products that must be kept in mind:
• Unlike regulated products, you cannot rely upon the marketing material and will have to test the veracity of the claims the product providers make – although they are still bound by the rules of trading standards and the misrepresentation act so they are committing an offence if their claims are too outlandish.
• There is no recourse to the FSA, FSO or FSCS for investors in the event of a dispute or investment failure. You will need to be very clear on this throughout your conversations with your clients.
This article continues….