46 | INVESTMENT
litigation at the fi nancial and auditing consultancy Protiviti told OPP “the FSA action is to be welcomed, but lending institutions need to take independent and thorough fi nancial references on those to whom they lend money. They should not rely too much on the broker for this information.” “In some of the large scale mortgage fraud cases investigated by Protiviti, we found that fraudulent mortgage brokers often worked in collusion with fraudulent solicitors and surveyors. In some cases the brokers had taken advantage of a ‘special relationship’ with lending staff at various fi nancial institutions, or the lending staff were actually complicit in a corrupt relationship with the broker.” But, despite all these concerns, the sector is booming. Provider Suffolk Life said interest in UCIS schemes has doubled in the past two years, especially in those that invest in overseas property. UCIS now represents about 10% of all the investments that Suffolk Life assesses each month. This equates to an average of ten a week, following HMRC approval.
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According to Greg Kingston, head of marketing at Suffolk Life, “the only problematic ones are those with little liquidity as we require any investment to be able to be liquidated or freely transferable within 12 months.” However, rival fi rm Dentons warned
that in fi ve years of holding SIPPs containing UCIS, it has never seen a single one produce the returns promised in the fund’s literature. Martin Tilley, director of sales and marketing at Dentons, said SIPP buyers should be “extremely wary” of investing in the schemes. “They never deliver what they promise, and are bordering on dangerous. We have investors with overseas property UCIS in their SIPPs going back fi ve years which should have matured two years ago, but none of them have,” he said. For Tilley, overseas property is “high risk,” and he has criticised a lot of schemes for offering clients “benefi t- heavy and risk-light” brochures. The FSA has recently fi ned IFA Specialist Solutions £35,000 for failing to adequately assess whether or not
customers were eligible to receive UCIS promotions, and not ensuring that they were given suitable advice before investing in the schemes. The move followed an FSA decision to ban and fi ne £28,000 two partners at investment fi rm Clark Rees in February of this year for similar UCIS advice failings. UK-based international consultancy Project Kudos, headed by Steve Wright and Lee Smith, specialises in the
“Schemes have been sold based on the commission paid, not the security of return to clients”
structure and operation of investments in SIPPs and syndicated investment schemes for clients such as international developers and product suppliers in the alternative energy and commodity sectors … and they too are worried about the reputation of the market being damaged by poorly run and badly sold schemes. “Undeniably there have been instances where SIPP investments have been made by ill-informed owners of a SIPP.”
“They may have given direct instruction to their SIPP Trustees to make an investment into a UCIS, or they may have gone through well- intended or commission-driven Independent Financial Advisors, (IFAs) advising them to invest in a specifi c UCIS,” says Wright.
Speaking exclusively to OPP, Wright said, “yes believe it or not, there are IFA’s out there who do not really have their client’s best investment interest at heart, and promote unregulated products to their clients based on the commission they are paid, rather than the security of return to their clients.” “It is this sector of the fi nance industry which in my view, the FSA is quite rightly interested in pursuing and holding individual advisors to account.” Wright acknowledges that “there is also a complex set of rules about which CIS and UCIS can be marketed to,” … but “this has been frustrated in recent months by the FSA themselves, who revised their view on what constitutes marketing or advice by an IFA.” This is not an unusual situation.
Box clever | and join legal expert John Howell in formulating a response to the FSA
Wright fi nds that the FSA often gives out confused and confusing messages. He also fi nds Vince Cable’s position a
www.opp.org.uk | JUNE 2011
little odd. “SIPPs have been established as a tax wrap for investment since 1989,” says Wright, “but it wasn’t until pension regulations were relaxed in April 2006 that they became more accessible. Previously, SIPPs were only available to people who had personal pension funds in excess of £200,000, but largely due to the poor performance of a number of main pension providers, the desire for people to take more control of their pension investments led to the likes of Standard Life, Fidelity, Jupiter, Legal and General, and now many more providers launching their own SIPP products. Nowadays everything from unlisted shares, company bonds, commercial property and much more is allowed as an investment through SIPP.” “With many forecasts suggesting that more than 5 million new SIPPS will be established by 2020, Vince Cable and his friends in Westminster, may well have some cause for concern regarding the increasing popularity of new SIPPs being established in the UK.” “This is because SIPPs attract tax relief against funds deposited into the SIPP, with several million more people exercising their right to this tax relief, it’s no wonder that “eyebrows will be raised” at the treasury.” “The interesting observation
here is that it’s largely due to the consistent poor performance of the regulated industry and products, which carry the approval of the FSA that has caused this increasing trend towards SIPP investment.” “This, coupled with the collapse of the banking system in 2008 and the present global recession caused by the regulated industry that are now criticising UCIS, has driven the educated public to want to choose what to invest in, and take control of their future pension funds and fi nancial destiny.” For Wright, the answer to all this is simple. “In my view,” he told OPP, “do thorough due diligence, check out all the information provided about any investment you are considering making, regulated or unregulated. Look for evidence of past performance and take an objective view of the likelihood and success of the claims provided in the investment prospectus. Ensure you are making a thoroughly informed decision.”
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