A recent exchange on Twitter between our Marketing Manager, Phillip Bray, and an unhappy SIPP investor led us to thinking about the world of unregulated investments and in particular the term, ‘SIPP approved’.
Responding to one of our blogs, ‘7 lessons all investors can learn from the problems with Harlequin Property ’, the investor asked:
“Perhaps you can explain, when something is SIPP approved, does that not mean due diligence and checks have been made?”
This got us thinking, what does the term ‘SIPP approved’ actually mean? Could it actually be misleading to investors and how much due diligence do SIPP providers actually do?
What does ‘SIPP approved’ actually mean?
Frankly, not a lot but let us explain in more detail.
Only certain investments are allowed in a SIPP. Your SIPP provider will be able to tell you whether a specific investment is allowed and it is down to each specific provider to interpret HMRC’s rules and decide whether to accept an investment.
One thing to make clear, just because a provider allows a specific investment to be held in a SIPP, it doesn’t necessarily mean a significant amount, or indeed any, due diligence has been done; more of this later.
A quick search on Google reveals that the term ‘SIPP approved’ is used widely in connection with unregulated investments. We found examples of the term being used to promote a wide range of unregulated investments, including:
- Storage units
- Hotels in the UK and overseas
- Luxury holiday accommodation in far flung parts of the world
- Bamboo crops
- Farmland in South America
- Renewable energy
- Car parks
The term ‘SIPP approved’, is clearly designed to reassure investors that an investment is allowable in a SIPP and also that it has been approved as a valid and worthwhile investment. Indeed, one website promoting an unregulated investment in storage units says: “SIPP Approve. Security for the investor.”
Let’s be clear about this, using the term ‘SIPP approved’ in connection with an unregulated investment means absolutely nothing. There is no organisation which unilaterally approves SIPP investments and provides them with a stamp of approval; the regulator certainly doesn’t approve them, after all these are unregulated investments.
‘SIPP approved’ is therefore simply a marketing term, or gimmick if you prefer. It carries no weight whatsoever, the problem comes though when unsuspecting investors see the term and think it is some sort of stamp of approval, similar to the well-recognised kite mark, and make a decision to invest based on the use of the term.
How much due diligence on alternative investments do SIPP providers undertake?
A debate has been ranging for some time now, on how much due diligence SIPP providers should and indeed do, carry out on unregulated investments.
We work closely with a wide range of leading SIPP providers, so took the opportunity to ask them how much due diligence they undertake and about some of the investments they have declined to allow in their SIPP.
Martin Tilley, Director of Technical Services at Dentons, said: “I dislike the phrase ‘SIPP approved’ immensely. It has absolutely no weight at all and statements like it can be grossly misleading as is ‘HMRC approved’. Even if the investment has been accepted by one SIPP provider it doesn’t follow than other providers will accept it.”
Martin continued: “The absolute responsibility for acceptance of an asset within its SIPP book lies with the provider. If they are not comfortable with an asset they are within their rights to reject it. The SIPP Provider may use whatever outside agencies in helping in their due diligence as well as their own internal resources, as we do, but they will have the final say.”
“In making our decisions we look much further than will it (the investment) create a taxable charge. We have a robust process with the Dentons Investment Committee monitoring and reviewing sophisticated and unregulated investments. The Committee also uses the services of the Sipp Investment Platform (SIP) to carry out 3rd party due diligence and provide investment reports, as well as other online due diligence tools. These reports form the basis of Dentons decision making process for approving or declining such investments.”
Unregulated investments are by their very nature higher risk than other options and the FSA (Financial Services Authority) are certainly keeping a closer eye on them and how they are marketed.
We believe that unregulated investments are only suitable for a minority of sophisticated, experienced and wealthy investors and if you do decide to invest in this way comprehensive due diligence is crucial.
One option of course is to take financial advice from an IFA who specialises in these types of investments, you should also do your own comprehensive checks and due diligence.
Relying on the marketing literature of an unregulated broker, who will earn a hefty commission if you invest, really isn’t an option. Neither is relying on a SIPP provider to carry out due diligence on your behalf or relying on the ‘SIPP approved’ tag.
Questions? Queries? Comments?
We’d love to hear your thoughts, why not leave a comment below?