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A grim unfairy tale of SIPPs and salesmen

Alan SteelWe had a recent visit from a retired couple just turned 70, recommended by their best friends who have been clients for 20 years. Their IFA, they explained, was a one-man band and wasn’t returning calls. They understood he had terminal cancer.

So, given they’re receiving income from their pension plans they described as SIPPs (Self Invested Personal Pensions) and as they felt they needed ongoing advice, they asked us to take over the management of their plans. 

And that’s when the fun started. If that’s an apt description.

Despite their time in a family business they confirmed that when it comes to investments and pensions they’re not financially sophisticated and that they’re risk averse, cautious at best. So it came as a shock to all of us, them included, to discover their pension plans were so off the scale of risk as to be downright dangerous. 

Up to four years ago their pensions were with a well-known insurance company and not exactly setting the heather on fire but safe from nasty surprises. But then their “adviser” got greedy.  As trusting souls they went along with his suggestions of upping their income and transferring to a more up to date scheme. They’d heard of SIPPs in the newspapers, after all. 

Could we see the recommendation reports (reason why letters)?  “Well, no, there weren’t any”. How about risk warnings? “Nope, but he knew we were cautious and couldn’t take risks”.  

Any details of hard disclosure? “Such as?” Well, charges or fees earned in the transaction? “No, but he was kind enough to pay all the lawyers fees and other bills the investments were bought by the SIPP.” So how much was that? “Don’t know, we never were told.”  Oh oh.  Sound right to you?

For some unknown reason my industry seems to hide the fact that if you have a SIPP you need trustees who are supposed to act in the best interests of the members. So why do they allow this retired couple to be persuaded into a high risk car park, holiday lettings and storage pods income schemes with no guaranteed asset values ?

And why do the trustees keep any commissions or sales charge details to themselves and not disclose to the members (their clients)? I would be surprised if their IFA earned less than 5% to 10% on this deal. And guess who pays that?

If you think I’m being OTT let me share some small print on their income investment linked to their holiday lettings …. “Investment in the bonds carries substantial risk….Potential investors should note these bonds are high risk. They are unlikely to be suitable for those who do not have the experience of understanding to be able to evaluate the chances of success of start-up companies.”

The other risk warnings were even more scary.  Be fearful!  These are Unregulated Investments. There’s no protection from the Financial Services Act when things go wrong. Their adviser maybe didn’t appreciate that such high risk investments are wholly unsuitable for retired cautious investors.

So if you’re being “sold” a SIPP, stop. Take impartial advice. Read the risk warnings. Insist on a detailed “Reasons Why” explanation. And don’t do anything until you find out what are all the costs. You could lose everything. Yes, really.

One last thing.  Commentators are clearly confused as to what a SIPP is. The vast bulk of pensions plans they call SIPPS are not. They are simple plans that allow a wide choice of collective funds to be purchased.

Only if you insist in investing in bricks and mortar, or individual shares etc do you need a SIPP with its extra costs and complications. Other than that,  stay well clear of them.

 Alan Steel is chairman of Alan Steel Asset Management

Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.

2 Comments to A grim unfairy tale of SIPPs and salesmen

  1. Thanks, some valued advice. Unfortunately too late for my aunt who is having a mis sold pension claim investigated. Hoping she gets her money back. It’s disgusting the way some people profit from others’ misery

  2. Whilst the key message from Alan is sound, with regards to being cautious about any hi risk or non standard investments, Alan’s comments about the limited suitability of a SIPP is wide of the mark.

    In addition to direct commercial property investments and individual shares, tens of thousands of full SIPP clients benefit from holding collective investment accounts (discretionary managed portfolios, stockbroking accounts, TIPs, etc), either as a single SIPP holding, or a variety of accounts.

    Within these accounts the assets held are standard, regulated investments within the clients risk profile and these accounts can’t be facilitated within platform SIPPs or simple PPP’s.

    The average fund value for genuine full SIPPs is usually in excess of £300k, so with most charged on a fixed fee basis, the costs as a percentage of fund are often significantly less than if clients use wrappers that charge on a percentage of fund basis.

    It should also be recognised that if advisers and their clients utilise a well managed full SIPP provider, service levels are generally far better than the larger less personalised pension providers.

    It’s totally unfair to tar all full SIPP providers with the same brush. Many have been shockingly poor at protecting clients from scam investors and the FCA needs to push ahead with it’s review of non-standard assets within SIPPs, but others have done a fantastic job of avoiding toxic assets and providing a genuinely flexible and cost effective alternative for both advised and non-advised clients.

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