This article is taken from FT Adviser, where Intelligent Partnership’s research was highlighted. Click here to see the original page

Accelerating growth in the Self-Invested Personal Pension market and an increasing tendency towards alternative investments could lead to major product failures and the possible winding-up of a Sipp operator, a research company has warned.

According to research by Intelligent Partnership for the Alternative investment report, as much as 70 per cent of new investment into alternatives in 2012 was made through Sipps, in part driven by strong growth in the number of new Sipps being set up on an execution-only basis in that year.

The report estimates total Sipps on the market have now surpassed 1m, with £125bn invested through them. It adds that how much some operators have relied on alternative investments to generate new business is unclear.

Warnings over the use of Sipps for esoteric investments such as overseas property have been frequently sounded in recent months.

In one case, alarm was sounded over after it was revealed that a property investment firm, Arck LLP, is being investigated by the SFO on fraud charges. According to law firm Regulatory Legal, the case could amount to £60m in claims, much of which has come through Sipps.

In another case, some 2,000 investors are thought to have a £40m exposure to a bio-fuel investment that has attracted a large proportion of its investment from Sipp investors. The same law firm has said an initial review showed up to 90 per cent of investments were mis-sold.

Some have responded to the cases by demanding a return of the permitted investment list for Sipp firms. Under new FSA proposals, Sipp operators will be made to hold more capital in reserve against non-mainstream investments, including commercial property.

Daniel Kiernan, chief analyst at Intelligent Partnership, said: “There are many benefits to alternatives and there is undoubtedly a consumer appetite for these types of investments.

“[However,] if the sector cannot develop a coherent proposition and ensure high standards all the way along the value chain – from the product provider, to the marketing and distribution and finally at the point of sale – then consumers will learn to stay away and the regulator will make it impossible to do business.”