SIPPs: FSA warns on overseas property investments


FSA warns on overseas property investmentsThe FSA has issued two warnings to advisers and investors highlighting the dangers of overseas property and wider unregulated investments. In a separate alert to financial advisers the regulator also took the unusual step of naming one particular unregulated investment scheme.

SIPPs and unregulated investments

In the first warning the FSA highlighted their concerns over some financial advisers recommending SIPPs (Self Invested Personal Pensions) to investors who then planned to buy unregulated investments within the SIPP.

The FSA is concerned that some financial advisers are recommending SIPPs without also assessing the suitability of the unregulated investment, which they know the SIPP will be used to purchase.

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The statement says: “It has been brought to the FSA’s attention that some financial advisers are giving advice to customers on pension transfers or pension switches without assessing the advantages and disadvantages of investments proposed to be held within the new pension. In particular, we have seen financial advisers moving customers’ retirement savings to self-invested personal pensions (SIPPs) that invest wholly or primarily in high risk, often highly illiquid unregulated investments (some which may be in Unregulated Collective Investment Schemes). Examples of these unregulated investments are diamonds, overseas property developments, store pods, forestry and film schemes, among other non-mainstream propositions.”

The FSA statement goes on to detail the way in which some advisers are currently making SIPP recommendations, without actually recommending the final investment. It appears that ‘introducer firms’ are marketing unregulated investments, such as overseas property, forestry or commodities, then once a potential investor expresses an interest, he or she is passed to a financial adviser who recommends a suitable SIPP, but does not advise on the suitability of the unregulated investment.

The FSA say that this is unacceptable and that advisers should be assessing the suitability of any pension transfer, the SIPP itself and the investment and not just considering the SIP recommendation in isolation.

The statement from the FSA said: “Financial advisers using this advice model are under the mistaken impression that this process means they do not have to consider the unregulated investment as part of their advice to invest in the SIPP and that they only need to consider the suitability of the SIPP in the abstract. This is incorrect.”

“Unsuitable levels of risk”

The popularity of unregulated investments has risen over recent years and the FSA is clearly concerned that some financial advisers are not assessing whether the high risk nature of the unregulated investments are suitable for the investor.

The FSA statement said: “We have seen cases where, as a result of these advisory strategies involving unauthorised firms, customers have transferred out of more traditional pension schemes and invested their retirement savings wholly in unregulated assets via SIPPs, taking on very high and often entirely unsuitable levels of risk despite receiving advice on the pension transfer from regulated firms.”

In advance of the FSA’s warnings it is clear that some SIPP providers are imposing their own controls. This week, Martin Tilley, Director of Technical Services at SIPP provider, Dentons, revealed to IFAOnline that they had turned down unregulated investments into off plan hotel rooms, carbon credit investments as well as land banking schemes.

Harlequin Property

The FSA also took the unusual step of issuing an alert specifically naming one investment company.

The FSA seems concerned about the number of SIPPs investing in overseas property via Harlequin Property, a “UK based overseas property sales agent that is not regulated by the FSA.”

The alert goes on to warn financial advisers that before recommending an overseas property development through Harlequin, they need to have carried out thorough due diligence on the scheme, whilst also considering other factors to ensure that any recommendation is suitable.

Our advice to investors

We’ve been warning for some time now about the dangers of unregulated investments in pensions and the disadvantages of transferring final salary or defined benefit pensions into a SIPP. We therefore welcome this action by the FSA into the practices of some advisers who are making SIPP recommendations, but effectively turning a ‘blind eye’ as to whether the unregulated investment, which they know will be purchased by the SIPP, is suitable for the investor.

We would recommend that anyone thinking of making such an investment follow some simple rules to avoid making a damaging mistake:

1. Final salary and defined benefit pensions. It’s rarely in your best interests to transfer from these types of pensions. Such schemes provide a guaranteed income in retirement, which is index linked, both before you draw benefits and after you have stopped work.

If a financial adviser recommends that you transfer away from such a scheme we’d suggest you get a second opinion as making such a transfer is unlikely to leave you better off in retirement

2. Unregulated investments. As the name would suggest these types of investments are not regulated by the FSA and generally carry a far higher degree of risk than regulated investments.

Furthermore the people who sell these types of investment are also generally unregulated, meaning there is unlikely to be any comeback for investors to the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS)

3. “Pension liberation”. This term is now being used by many firms to describe accessing your pension fund before you are age 55. Except in very specific circumstances linked to ill health, it is not possible to access your pension fund until you are 55, without hefty tax charges.

Therefore be very wary of any firm who promises you early access to your pension, you are likely to pay high charges and commissions, end up in a high risk investment and with an unauthorised payment charge, effectively a tax, of at least 55%

4. Unregulated ‘advisers’. Always use an Independent Financial Adviser who is regulated in the UK by the FSA. This is the only way of getting an adviser who is qualified, independent and fully regulated.

Never take advice from an unregulated ‘adviser’; if their recommendations turn out to be poor you will have no comeback to the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS)

Having seen the effects of investors making poor decisions with their pensions we feel very strongly about this subject.

If you are approached by any ‘adviser’, but particularly if they are not regulated, who suggests you transfer your final salary pension, make unregulated investments or take money from your pension before you are 55 we’d suggest you walk away and take advice elsewhere, it really should be as simple as that.

We want to hear from you

If you have transferred your pension, or made unregulated investments, having spoken to an unregulated ‘adviser’, we want to hear from you.

Why not contact us, in confidence, and tell us your story? We’d love to hear from you and to see if there is anything we can do to help.

Call us on 0115 933 8433 and ask to speak to Bev Stoves, one of our Independent Financial Advisers, alternatively email us at