The 2012 and sequel thematic review in 2013 made Sipp operators aware of precisely what their duties and responsibilities were, which were no longer limited to avoidance of assets likely to result in tax charges, but to have a clear understanding of the underlying features of any asset accepted into their book.
The regulator’s requirements are such that many Sipp operators, where acceptance of the more esoteric assets is not core to their business, have now stepped out of the market leaving only the specialist operators able to devote the resources to meet the requirements. The teak plantations, jatropha plantations and off-plan hotel rooms are now investments of the past, but Ucis remains a viable investment vehicle, although care must be taken.
Ucis and close substitutes, often known as non-mainstream pooled investments are, as the name implies, unregulated. Unlike their regulated counterparts, Ucis are not forced to confine their investment and promotional activities to parameters within FCA regulation.
This non-compliance results in the funds not being permitted to be sold to the general public in the UK. This restriction is covered in the Financial Services and Markets Act 2000 and broadly limits promotion of unregulated collective investment schemes to only sophisticated or wealthy individuals, such as those with an income above £100,000 per year or investable assets of £250,000 or more. For advisers with clients in this category, the independence requirements of the retail distribution review will require those advisers to advise on and, in some cases, recommend Ucis. There will quite probably be a small minority of most advisers’ client banks where a Ucis would be suitable.
It must be stated, though, that not all Ucis are bad news. Some funds simply do not meet the criteria of a regulated fund through liquidity issues. The underlying assets might be in property or timber, as examples. Trading might be infrequent, perhaps monthly, quarterly or even annually. Or it may be that the underlying assets are simply considered to be outside of the mainstream asset classes. The regulator requires that in order to assess before acceptance, a Sipp operator must ensure that they can:
• Correctly establish and understand the nature of the investment
• Ensure that an investment is genuine and not a scam, or linked to fraudulent activity, money-laundering or pensions liberation
• Ensure that an investment is safe/secure (meaning that custody of assets is through a reputable arrangement and any contractual agreements are correctly drawn-up and legally enforceable)
• Ensure that an investment can be independently valued at point of purchase and subsequently
• Ensure that an investment is not impaired (for example, that previous investors have received income if expected, or that any investment providers are credit-worthy).
