Beware of dodgy Sipp investments

According to the Financial Ombudsman, hundreds of pensioners have lost their self-invested personal pensions (Sipps) to unregulated investments following advice from unregulated and, even more worryingly, regulated financial advisers.

Two Australian schemes have caught investors out in recent months. These offered access to agricultural land and promised high security and returns on investment. Law firm NeglectAssist has been working on investors' claims following huge losses to their pension portfolios.

Alan* recently lodged a claim after losing £30,000 to an unregulated fund that he was advised to invest his Sipp into. He first took advice from Alhaurin Wealth Planning following an online search for free pension investment advice. On Alhaurin's advice, Alan transferred his contracted out workplace defined contribution pension scheme into a Sipp. He then invested £30,000 of the Sipp money into a farmland scheme in Australia that they said "guaranteed" a return of 7 per cent annually. Alan later discovered that the valuation of his land was inadequate and misleading and that he was trapped in the scheme.

If Alan had checked the Financial Services Register he would have quickly realised that Alhaurin was not regulated and neither was the collective investment fund his money had been put into, leaving him stuck when it came to trying to recoup his lost pension.

In the second case brought to NeglectAssist, James* was persuaded to invest in a niche green investment in Australian 'green oil'. He was seeking a low risk investment for his savings as well as a reasonable rate of return in order to supplement his pension income during retirement. His independent financial adviser (IFA) recommended purchasing a sub-lease on an Australian plantation requiring a minimum £10,000 investment. After five years of holding the land, investors were told they would receive their full investment back along with their 80 per cent return at the end of the term. Three years later James lost his entire investment when the companies involved were placed into administration.

Unlike the first case, James's IFA was registered with the Financial Conduct Authority, making it easier for his lawyers to lodge a claim and sue for alleged negligent advice. But Alan faces a harder battle in seeking compensation. He is not alone in having fallen prey to an unregulated adviser offering seductively appealing returns.

Both cases are cautionary tales for pension investors aged 55 and over who will have complete access to their pension pots from 6 April 2015. Pradeep Oliver, a partners at Neglect Assist sees "a real potential for misselling" in the new pension freedoms. "There will be more people out there with a sum to invest and more of an incentive on fraudsters and scammer to try and get their hands on it," he says.

A Phoenix Group survey released this week found that 45 per cent of people with pension savings who have yet to retire have been contacted, either through unsolicited calls or messages sent via email or text. Of those who have been approached regarding a pension review, more than one in six said they contacted the fraudsters as a result. The same research found that 38 per cent of those likely to release their pension will go to free pension review companies online which could be a front for fraudsters.

What can I do if I've been badly advised?

"The vast majority of cases we do are generally insured financial advisers who are authorised but got the advice wrong," says Mr Oliver. "If the adviser gives you bad advice and you’ve suffered a loss it can be a breach of the duties within the FCA handbook."

In Alan's case, the firm is pursuing the Sipp instead of the investment scheme, which has gone underground since the case opened. "There are duties on the Sipp provider to treat clients fairly," says Mr Oliver. "There is no duty to check the suitability of investment but they do have to run their own checks on the business being put through the Sipp. A basic check of the Financial Services Register would be expected for a Sipp doing business with an intermediary."

But he warns: "The problem with all of these things is that the dodgier the investment, the harder it is to pin anyone with any responsibility and the harder it is to receive the damages, even if that is possible.”

If you feel you have been the subject of a fraudulent investment scheme or given negligent advice you can either instruct a lawyer or turn to the Financial Ombudsman Service (assuming the IFA or scheme in question is still trading) and the Financial Services Compensation Scheme (if it is not).

However, to seek redress from the ombudsman you will need to make sure the scheme is an FCA regulated business, meaning you cannot claim over losses from an unregulated fund.

How to invest in agricultural land

Jason Hollands, managing director at Tilney Bestinvest says: "If there are schemes to invest in agricultural land overseas they would be unregulated schemes that wouldn’t be permissible to market to a retail investor."

Two years ago, the financial regulator banned the marketing of unregulated collective investment schemes to ordinary investors. Unregulated funds are not subjected to the normal level of scrutiny and are able to invest in highly volatile, niche assets without being held accountable to their potential losses.

Investors with a high risk appetite could consider the Swedish-listed stock called Black Earth Farming (Sw: BEFSDB) which invests in farmland in Russia. Alternatively, take a look at companies involved in farming such as farm machinery giant, Deere & Co (US: DE). You can read more IC ideas on agricultural plays here.

When it comes to direct investments in farmland, it’s probably best to leave it to larger institutional investors and pursue funds investing in the agricultural sector instead. You could opt for an exchange traded fund (ETF) which tracks an index and invests in a broad portfolio of commodities or choose to place your trust in an active manager who might be able to spot opportunities and surf this volatile market more effectively.

Morningstar analyst Charles Younes suggests looking at Allianz Global Agricultural Trends (LU0342692547), launched 2008 in response to soaring demand for agricultural stocks. The fund is split between upstream and downstream investments, meaning it invests in machinery and fertilisers as well as crops in an attempt to outperform whether commodity prices are rising or falling. “We like the investment process as the manager is trying to benefit from both rising and falling commodity price environments,” says Mr Younes. Over five years the fund has delivered cumulative returns of 46.6 per cent and has returned 13.9 per cent in three years.

Despite being a Luxembourg-listed fund this product does have UK reporting status – though taxation will be less of an issue if holding this within a Sipp wrapper – and charges are relatively low when purchased on platforms, at 1.13 per cent.

Another option is the Sarasin Food and Agriculture Opportunities Fund (GB00B2Q8L643) which also invests in upstream and downstream companies. Holdings in Ocado (OCDO) helped it pick up strength in the last quarter of 2014.

Darius McDermott, managing director at Chelsea Financial Services, likes Baring Global Agriculture (GB00B3B9VD63). He says: "Baring is well resourced and this is a broader product than some of the others which has done well."

Annual returns (%) from recommended agriculture funds

Source: TrustNet (waiting for benchmark data)

* Composite benchmark made up of DAXGlobal Agribus TR IX (66%) and MSCI ACWI Food, beverages, tobacco, water util, TRN (34%)

CONTACTS:

NeglectAssist: www.neglectassist.com

Financial Services Register: www.fca.org.uk/register/

Financial Ombudsman Service: www.financial-ombudsman.org.uk

Financial Services Compensation Scheme: www.fscs.org.uk