Esoteric investments will remain attractive moving forward – as long as the correct due diligence is done.
There has been much debate over whether the self-invested personal pension market can continue its current growth rate, with some thinking it is simply unsustainable while others believe the growth will migrate to the platform and simple Sipp market rather than the bespoke arena.
While there will be a rise in the do-it-yourself, execution-only Sipp arena, full, bespoke Sipps will continue to remain in favour with entrepreneurial investors wishing to do things like investing in commercial property or unquoted shares or making in specie contributions of assets.
However, Sipp members can often be excited by the initial allure of having the freedom to manage their own pension pot and this can prove to be a double-edged sword.
There has been talk of an FSA crackdown on providers offering large volumes of esoteric investments in a Sipp. Such investments are unusual and complex by their very nature, but that does not render them intrinsically unsafe and it wouldn’t be a negative development for the market if they were to come under closer regulatory scrutiny.
What the industry could benefit from is a firmer definition of what constitutes an “esoteric” investment. One provider’s esoteric investment might be commercial property, whereas for another it might be a tropical rainforest fund in a remote country.
What is needed is a formal code of practice as to how investments are vetted in the first place and how the Sipp provider and the IFA interact when advising clients on what constitutes appropriate investments for their Sipps.
The real issue is where responsibility for assessing an investment lies and the roles that the adviser and Sipp provider play. As part of their due diligence, Sipp providers and advisers should already be working together to ensure investments are appropriate, so there is no reason why esoteric investments will not remain attractive going forward.
Of course, the official bodies, whether the Serious Fraud Office or the FSA, would need to be very careful that new regulations brought in because of a few poor investments do not spoil it for the rest of the market.
Sipps make a fantastic retirement savings vehicle, given the freedom and flexibility they offer investors. However, they also require specialist knowledge in order to help them achieve their maximum potential. It is unsurprising that more than 70 per cent of people do not believe they have the right expertise to manage them properly.
Poorly thought-through regulation could make investing via a Sipp difficult for the thousands of pension savers that do it successfully every day.
Source : FTAdviser
By Stewart Dick | Published 08:33
Stewart Dick is head of sales at Hornbuckle Mitchell