“They have been rightly concerned the underlying risks are not being explained to clients, meaning they were being allowed to invest in a regulated pension environment without the appropriate advice.”
For Mr Woore, problems in this area got worse after the introduction of the retail distribution review, which meant after no advisers could charge commission on pension and investment products.
“As a result, a lot of financial advisers had to get requalified and charge the asset under advice fee for managing assets properly in the regulated environment,” he says.
“However, a good proportion of the old-style commission advisers did not become regulated, generating a larger non-standard assets industry of unregulated advisers, who were promoting investments where they could still take large commission and/or fees without being a formally regulated adviser.”
As a result, the FCA – and the courts in some cases – are dealing with the worst excesses of the non-standard industry, he concluded.
However, advisers recognise that not all non-standard investments are distressed or toxic, and the distinction between these and good quality non-standard investments is an important one to make.
“There are still some non-standard assets where the underlying asset can be understood and make sense for the client to invest in at the appropriate level – but this should only be done with the right advice and scrutiny,” says Woore.
For Mr McPhillips, of greater concern to advisers is likely to be the extent to which a provider is exposed to large volumes of business placed into one particular, non-standard investment “and/or the extent to which a provider has relied on unregulated introducers of business to it”.
With all this in mind, an adviser's due diligence of Sipp providers is more critical than ever – and using already well-publicised examples of failures can help this process, too.
“Advisers will undoubtedly look for well-structured and well capitalised businesses, rather than ones which simply offer very low-cost propositions,” says Mr McPhillips. “Low cost can have its own toll on clients and advisers.”
