What do you need to consider when it comes to choosing suitable SIPP investments?
When looking at the suitability of investments, historically, most self-invested personal pension (SIPP) providers’ due diligence involves looking at compliance with pension scheme legislation. Therefore, they would be focusing on areas not suitable for SIPP investment in general, such as residential property and connected loans. It is also important to ensure commerciality where there is any connection between the SIPP member and the investment or investment provider.
Now, while these areas remain absolutely key, of course, it is becoming clear many SIPP providers have not been extending suitability considerations to individual client circumstances. Therefore, once an investment is deemed to fall within permissible pension regulations, there seems to be very little – or indeed any – individual consideration.
It’s clear to see that – to ensure suitability – SIPP providers (like we do at Mattioli Woods) look at not only the investment itself, but the suitability for each individual client, typically taking into account factors such as:
- the investor’s previous investment experience and expertise
- a portion of their SIPP and wider wealth to be invested
- any fixed sources of income
- timescales to retirement (particularly with illiquid investments)
- source of business: e.g. has there been input from a regulated financial adviser? And how did the investor come across the proposed investment?
What to do if you find yourself in a bad investment?
It can be difficult for investors to identify at any early stage whether an investment is not as expected or promised. Indeed, implausibly strong or consistent investment returns are some of the hallmarks of investments that are not as they seem, such as Ponzi schemes.
By contrast, the majority of investment classes will suffer fluctuations in performance over the short‑to‑medium term, so – opposite to what investors may think – this is not necessarily a cause for concern. Therefore, if in doubt, an investor’s first port of call should be to seek advice from a regulated financial adviser. A regulated adviser will be able to not only review the investment itself but also the ongoing suitability for a particular investor, and therefore whether they should continue to hold or seek to exit.
Article produced by: