Advisers have called for the regulator to crack down on self-invested personal pension providers who allow risky assets to be held in their wrappers.
Some 71 per cent of 350 advisers surveyed by Coredata in September 2021 said the FCA should ban unregulated assets, such as cryptocurrencies, in SIPPs.
The survey showed a hardening of opinions about high-risk investing through SIPPs, as when Coredata conducted a similar survey in 2020 it showed 40 per cent of advisers thought SIPP providers should not be allowed to hold non-standard assets.
The growth in negative sentiment among advisers towards non-standard assets in SIPPs is likely to be connected to the growth of the Financial Services Compensation Scheme levy.
The FSCS levy has been increasing in recent years, in part due to the rising number of claims relating to SIPP investments and advice.
The overall FSCS levy has increased in nominal terms from less than £300m in 2011-12 to an expected levy of £717m in 2021-22.
Ian Lowes, managing director of Lowes Financial Management, said he had heard of many instances where SIPPs were invested in offshore properties, forests and obscure investments which turned out to be worthless.
Despite this, he said SIPPs could be used as a way to fund commercial property purchased for the policyholder’s business and it would be a shame to see “genuine solutions” like this regulated out of the pensions landscape as a consequence of wider action to protect “unwitting people from themselves”.
"Whilst they are far from the sole cause of issues in the savings, investment and pensions market, unregulated investments often spell trouble,” he said.
Nick Parkes, chartered financial planner at Ryley Wealth Management said the SIPP provider itself ultimately had to be responsible for the investments in the pension.
“A lot of clients are being sold the dream and the investment has not gone that way for them.
“The SIPP provider ultimately has to be responsible.”
More than eight in 10 (83 per cent) of those questioned in the most recent survey think the regulator should introduce a list of prohibited SIPP investments, up from 76 per cent a year ago.
Parkes agreed, saying clarification would be helpful.
“Perhaps it would be more beneficial to have a list of permitted investments [in SIPPs] and to have some unregulated products not allowed on that [list]," he said.
Ben Yearsley, consultant at Fairview Investing, said he did not have a problem with unregulated assets in SIPPs, except when they went wrong.
“I don’t have a problem with people being allowed to buy unregulated assets, what I have a problem with is when those unregulated assets go wrong, and compensation falls on the FSCS, and everyone else pays.”
A spokesperson from the FSCS said SIPP claims normally fell into two categories, either against the financial adviser for poor advice, or against the SIPP operator themselves for poor due diligence in accepting investments into their SIPPs that were not appropriate for their customers.
They added: “For FSCS to pay compensation for a specific asset, it must be a ‘designated investment’ under FCA rules. For example, we might be able to pay compensation for negligent advice to invest into a unregulated collective investment scheme (UCIS) within a SIPP (the designated investment being a ‘unit’ in the UCIS), even though the UCIS itself was not regulated.”
The lifeboat scheme said each claim is considered on a case-by-case basis on the evidence the customer provides.
In the survey, half of those questioned said the Carey Pensions ruling in April last year has made them more cautious about high-risk investments in SIPPs.
The case, which went to the High Court last year, saw provider Carey Pensions lose a case against a former client, Russell Adams, who alleged that the company mis-sold him a SIPP.
In the survey, 86 per cent said the regulator should also ban unregulated pension introducers from the products.
Parkes said this was the right thing to do.
“Everything has to be transparent and disclosed, and the marketing out there is so one-sided, it’s easy for people who are not experienced investors to get drawn into [investments] that aren’t appropriate for them.”
Andrew Inwood, principal at Coredata, said while advisers recognised not all non-standard assets were exotic and toxic, they were worried about the risks posed by unregulated investments in SIPPs and want the regulator to take action.
“Providing clarity on the precise role of SIPP providers and advisers when it comes to high-risk investments is essential.”
The survey also showed the role advisers think advice should play in the allocation of SIPPs, as well as their predictions for the future.
Some 57 per cent of advisers think consumers should not be able to purchase SIPPs without taking advice.
Nearly half (46 per cent) of advisers think the number of SIPP-related complaints will increase over the next year, and 79 per cent think there will be increased regulatory scrutiny of SIPPs going forward.
NOTE: We claim no right or title to this article which appears in FT Adviser dot com. Author Sally Hickey.