The head of product & business development said because of a “loophole” whereby clients can transfer from a Financial Conduct Authority (formerly FSA) regulated pension wrapper, such as a UK-based Self Invested Personal Pension, into an overseas pension or Small Self Administered Scheme, clients can potentially be exposed to much riskier investments.
Wrench explained that once the client’s money is transferred into a QROPS or SSAS it is outside the scope of the FCA and an adviser can therefore recommend funds which may not be suitable. He added that the likelihood of this happening will increase as the FCA continues to step up its scrutiny of unregulated and esoteric products such as the Harlequin overseas property investment which the FSA warned about in January.
“One can envisage unscrupulous distributors contriving transfers from, perhaps, good occupational schemes into a QROPS – instead of using a SIPP as has been the concern recently,” said Wrench.
“Also, SSASs may admit non-employees as members and then, given that these schemes do not have to be common trust funds but may be structured as a collection of individual funds, we have a “SIPP look alike” situation.
“This leaves clients’ money open to even greater levels of risk, and rather than addressing the problem it simply transfers the problem from the regulated arena of SIPPs into an unregulated one, leaving the FCA powerless to address it.”
Moral responsibility
The responsibility for ensuring that clients are protected, as much as is possible, against investing in unsuitable products therefore lies with the advisers and providers, said Wrench, who added providers have a “moral responsibility to ensure any application concerning a potentially unsuitable investment is firmly rejected”.
“The difficulty is that providers generally do not have authorisation to advise on suitability – this is one of the key roles of IFAs,” he added.
“Providers and IFAs should therefore be working together to avoid future problems and potentially detrimental outcomes for clients. It would be interesting to understand where SSAS providers stand in relation to investment approvals as well as the SIPP providers.”
London & Colonial is a provider of both QROPSs and SIPPs, and last month announed its intention to launch a multi-platform QROPS which is due to open for new business on 22 April.
