We 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.