Many readers will be aware that 2019 was expected to be a watershed year for providers of self-invested personal pensions (SIPPs).
This had nothing to do with other distractions such as the significant amount of political and economic uncertainty. No, it had everything to do with the amount of due diligence that SIPP providers had or had not been required to undertake when assessing acceptability of non-standard assets within their SIPP books.
The two court cases which were expected to have given the provider community clarity on this very subject bore no fruit in the end.
Unfortunately, in the case of Berkeley Burke v Financial Ombudsman Service, the Court of Appeal hearing did not take place because Berkeley Burke SIPP Administration itself went into administration prior to the hearing. In the case of Adams v Carey Pensions, despite the High Court hearing taking place in March 2018, the judgement has not yet been handed down.
So, where does this leave clients wishing to access non-standard assets?
Advisers and paraplanners will know that there is still client demand out there for investments that may deliver better returns than they are seeing elsewhere in the investment universe.
Clients may be looking for investment opportunities within unquoted shares/private equity, loans to unconnected parties, intellectual property and so on. The challenge for advisers and paraplanners is knowing where to turn to for assistance on these types of assets.
For those clients wishing to access non-standard assets, and their advisers looking to facilitate these for them, the good news is that there are options available to them. Subject to sound due diligence work by a provider, non-standard assets can and should be available within SIPPs.
What does good due diligence by SIPP providers look like?
In light of the high profile court cases mentioned above, it should go without saying that responsible providers will have in place a robust due diligence process for assessing any non-standard asset that is put to it for consideration.
Hopefully, gone are the days of high volumes and high concentrations of investments simply being waived through into the provider’s SIPP book with little or no thought or consideration as to liquidity, future marketability, legal validity and so on.
The industry has suffered enough bad publicity to date resulting from previous practices by some providers, some of which no longer trade/exist.
A robust process is likely to encompass a range of structured stages. For example, a good starting point would be a comprehensive information-gathering pro-forma.
The quality of this initial screening questionnaire could be such that potential investors realise that they don’t know as much about the investment as they had thought. That might lead them to dismiss it altogether or to seek further information before proceeding. Clearly, that should help to focus the mind at the very early stages.
Assuming that there is sufficient information at outset for the provider to work from, the next stage might be for an experienced and knowledgeable person or persons within the SIPP provider to review the information and carry out research on the potential investment.
That may include, but is not limited to, checking the history and status of key figures within the investment provider’s structure, a detailed analysis of the underlying structure of the investment and so on.
In addition, it is likely that the provider will, at this stage, assess whether any tax charges might arise within the SIPP as a result of making the investment.
Many potential investments might not pass this initial screening stage.
For those that do, the next stage might be for the provider to consult an external due diligence specialist. That specialist is likely to ask, or have asked previously, searching questions of the investment provider and its report back to the provider will be of great value.
Some potential investments might not pass this additional screening stage.
For those that do, some providers may then have an experienced investment committee assess, as a group, the potential investment. That is a final “sense-check” of the proposed investment in the round, in the knowledge of lots of facts.
Some potential investments might not pass this final screening stage and are rejected.
Robust due diligence should be a key part of any SIPP provider’s DNA; for good reason.
Stephen McPhillips is technical sales director at Dentons Pension Management