FCA warning: Is your SIPP advice up to scratch?
The Financial Conduct Authority (FCA) found advisers were failing on a number of counts, but particularly in their due diligence of the Sipp they transferred their clients’ pensions into.
Instead of checking the suitability of the underlying investments for their clients, which the regulator requires, advisers were often restricting their advice to the merits of the Sipp wrapper, the FCA found.
It described cases where advisers would switch a pension invested in mainstream funds to a Sipp holding unregulated investments such as overseas property developments, store pods and forestry, as “unlikely to be suitable for the vast majority of retail customers”.
The FCA said: “Generally speaking, we found very poor standards of advice. Firms typically failed to carry out an adequate assessment of the customer’s overall financial position, needs, attitude to risk and objectives in relation to the switch or transfer as a whole.”
If you are unsure about whether you have been given unsuitable Sipp advice, here is a list of questions, courtesy of The Consulting Consortium, to consider:
Should I be concerned about the investments held in my Sipp?
Many Sipps hold investments that are not suitable for the majority of consumers, including overseas property developments or unregulated collective investment schemes (UCIS).
There are strict criteria surrounding what type of individuals can be recommended a UCIS. If you think you may have UCIS in your Sipp, you should ask the firm that sold you the investment, to explain which eligible investor group you fall into.
Certain investors will be categorised as ‘sophisticated’ (someone with extensive knowledge and experience of investing) or ‘high net worth’ (earning over £100,000 or having £250,000 in investable assets). Investors should ensure that they are comfortable that they have been correctly certified as falling into one of these categories.
Advisers should be able to explain the level and degree of risk associated with their investments and detail why the investment is suitable.
What questions should I ask my adviser if they have recommended I switch to a Sipp?
Investors should be wary and cautious of advisers who are not able to readily articulate (without jargon) the details, risks, and impact that holding a Sipp will have on their retirement objectives.
Investors should ask what investments are held in their Sipp and what their risk exposure is, as well as what the impact will be on their portfolio and overall investment objective.
Investors should also confirm with their adviser what charges there are, what the rate of return is and whether this is ‘actual’ or ‘targeted’.
What should I do if I’m not happy with my Sipp?
Investors with Sipps should contact their advisers to enquire as to the content of their investment portfolios. Investors not happy with their Sipp – especially if the level of risk they are exposed to is high – should ask what the implications would be of re-structuring their arrangements to better reflect their requirements and the level of risk they are prepared to take.
If an investor believes that a firm has advised a Sipp that is not suitable, or where the underlying investments are too risky with the risks not fully explained, they should make a complaint to the firm involved.
Firms should have procedures in place to resolve matters relating to existing investments. They should be looking to address cases where unsuitable advice was given, and take remedial action where appropriate.
Investors should contact the Financial Ombudsman Service and FSCS if things have gone wrong, and seek independent professional advice if they are in any doubt about the potential risk and returns involved.