SIPPs and ETFs in sights of new consumer risk body

Perchance.... to dream?

Over the past month or so there has been a veritable Tsunami of missives from the Regulator on the topic of risk. It is of course fair enough to ensure that a client’s attitude to risk is taken into account but due recognition should be given to the fact that this is far from an exact science. As an ex student of Sociology I can confirm that a clients attitude to risk increases with the profits they make and declines geometrically when the make losses. As I have repeated so often the most apt phrase by a client of mine many years ago was: “I don’t mind taking a risk – provided I don’t loose any money” which I think sums up most people’s attitude. However the Regulator should beware in not creating an investment “Elf and safety” desert. The Government have at last seen how pernicious this can be and I hope we don’t want to repeat this for Financial Services. To what does the Regulator aspire? That everyone should end up in cash fund returning 0.2% when inflation is now running at 5.5% (RPI & RPIX). This is a no risk guarantee – of loosing your purchasing power. Perhaps it might be appropriate if advisers explained the concept of risk to their clients and allowed them to take a measure of responsibility for themselves – or is this something our Nanny State and Regulator find anathema?

Posted by: Harry Katz

Coordination Committee

The Coordination Committee?? How stalinist can you get?

Posted by: Tom Clyde

The Paranoia Committee

Ah, Harry, you do have to accept that if the Government create a Quango that body must find for itself full time justification. So this committee will have the enjoyable job of coordinating all the current and future financial paranoias. By doing this they can never be taken to task for getting anything factually incorrect. The present approach to risk assessment by both the FSA and the industry is balmy. It is mainly based on blether, innuendo and total ignorance. Even a brief analysis of the the body of research of risk indicates that here are far too few facts to underpin the volumes printed. And what is more important, product risk or portfolio risk? Even the FSA have pointed out in the past it is possible to have higher risk investments in a lowish risk portfolio. Discuss in six volumes or less! One of the crucial aspects of risk definition is to actually create a reference point. Everyone has their own interpretation of risk levels, so most conversations on the subject are likely to be unreliable because people are speaking different languages. Whether it is “correct” or not we need a working scale against which aspects can be measured. We have a thermometer to show temperature; from that we can understand peoples statements of hot and cold. E.g. the reaction of Southern Softies or Northern Hardmen to a bit of cold weather. Is the FTSE All Share Index low, medium or high risk. If we defined it as medium risk we would then have a reference point for other investmetns, and clients would start to understand the basis for investment risk, and adjust their own understanding. Before we can start to analyse usefully attitude to risk, we must have that measure, however, crude. Then we can assess the information arising. There will still be arguments, but hopefully slightly more meaningful. I do not consider the EUs risk assessment measurement to be particularly good because it is too short to allow grading. I can understand EFTs being on the table for the Coordination Committee because, purely on a personal level, I believe their risk level is being underestimated. The primary benefit of EFTs is they are cheap. They are however, not an investment, but a bet, on indices. Do people understand the nature of the “horses” they are betting on? Probably not. But why are SIPPs on the table? They have been around for 20 years now, and, so far as I am aware, with very little, if any, whiff of scandal. And why is the prime problem matching SIPP investments with attitude to risk. As this is primarily a pension product, should the investment not be matched to sustainable growth and income, or whatever else the client deems appropriate. The more difficult problem with SIPPs is aligning them with life expectancy, not risk. This is yet more control by “committee created box fitting”. Its fascinating to watch the Tory Party, apparently the champions of Free Enterprise, watch a whole sector of finance being de facto nationalised. E.g see page 24 of Fund Strategy 28 March 2011 - “As the looming RDR prompts a greater take up of passive funds by advisers…” Note that it is not the market creating this pressure but the FSA. And based on what factual information? The debate between active and passive funds rages, without any clear cut answers. Why the pressure for passives? Generally because they have lower costs. However, there is no research that indicates that there is any meaningful relationship between cost and performance. By all means have both. Give the public choice. The pre-occupation with risk and cost is getting to the level of fetishism.

Posted by: Glen McKeown

SIPP wrappers ok - it's what's in them!

Most SIPP wrappers are ok. Don't know of any IFAs flogging ETFs apart from as part of a portfolio. I (and other UK IFAs) have come across a National Accountancy firm - with IFA practice attached - that have sold to all and sundry, regarldess of age, requirements, risk appetite etc - UCIS -Unregulted Collective Investment Schemes within SIPP and Bond wrappers. You may recognise these funds? (1)Brandeaux Administrators - Brandeaux Sterling Fund (a student accommodation fund) - 6 month wait for your cash (2) Curzon City Living - Poland Geared Growth Cell (Curzon now administered via Stratton Street Capital) - 3 year wait for your cash (3)Brandeaux - Brandeaux Ground Rent - no liquidity there at all and some very anxious clients When you look at the client's circumstances there was never any need for these to be sold. The IFA firm made much commission all undisclosed as a UCIS - it is a double bubble too - they get their fee on their own branded SIPP wrap - plus commission on the unregulated funds in the SIPP wrap. Don't get me started on banks - Lloyds TSB flogging a dentist client a £150k Capital Bond saying advice free - no illustration provided and £12k taken in commission (client sent in colling off notice). This is all going on right now yet what is being done about it? Do we need a new body to intervene or the curent body simply to wake up?

Posted by: Iain Wishart