Alternative Investments and Real SIPPs

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By guest author Tony Hales of Stadia Trustees.

While many Investment Advisers are preparing for RDR and trying to keep up with all the new developments in technology, more and more are being approached by SIPP clients wanting advice on alternative investments instead of just traditional fixed interest and equity investments. The advice being sought is ranging from private equity and hedge funds to overseas holiday resort property and revenues from oil wells.

It is sometimes tempting to try and steer these SIPP  into the comfort zone of insurance company funds, unit trusts and OEICs, on a well established funds platform for ease of administration, but is this really in the clients’ best interests? Especially as many investors feel let down and disappointed not just with these collectives but also with many other traditionally ‘safe’ investments such as shares in banks.

All SIPP clients should know that in order to get a higher return a higher risk must be taken but Investment Advisers with a working knowledge of the Efficient Frontier theory have a distinct advantage over other advisers and can respond to their SIPP clients with a much more professional approach. These Advisers are able to explain that by adding alternative investments to a traditional fixed interestand equity portfolio that total returns can often be improved without too much additional or increased exposure to risk.

This knowledge is appreciated by clients who, in many cases, often have some personal knowledge or a keen interest in the alternative investment they would like to be purchased by their SIPP e.g. carbon credits or an overseas resort. Also advising on investments outside those of the large insurance companies or fund supermarkets is becoming far less of a problem for those Investment Advisers who now have already changed their business model, or who are currently moving across to, Adviser Charging, in the spirit of RDR, rather than waiting for the FSA’s 2012 deadline.

The range of alternative investments coming to market is rising and there are now plenty of choices for all SIPP investors looking for other options to fixed interest and traditional equities in order to further diversify their portfolios and help manage risk with both good asset allocation and in line with the Efficient Frontier theory.

In addition to private equity funds, hedge funds and funds of hedge funds which give SIPP investors access to areas previously the domain of the very wealthy, there are many other alternative investments of interest. These include beaches, carbon credits, carbon offsetting, climate solutions, currency funds, farmland, football funds, managed futures, overseas property resorts, property recovery and bridging finance funds, residential property funds, student accommodation funds, traded endowment funds, trees in tropical forests, waste treatment and many eco andgreen and other specialised investments, all of which are suitable for SIPPs. Alternative investments are also brining more people back to saving for their retirement in an enjoyable and interesting way. Oil revenue income from a ‘nodding donkey’ not only provides a good return for a SIPP investment but also makes for interesting conversation at supper parties which encourages more people to save for their retirement using SIPPs and that has to be good!

A SIPP is also an ideal vehicle in which to hold alternative investments alongside traditional fixed interest and equities. Remuneration for advice can be paid to the Adviser direct on an Adviser Charging basis from the SIPP itself. However, Investment Advisers do need to work with a SIPP provider which accepts all HMRC permitted investments in order to offer this true “whole of market” advice.

It is also important for Investment Advisers to find out whether the ‘real’ SIPP provider has the in-house technical knowledge and experience to help them and to find out exactly what that experience is and at what level it is e.g. level 6 with 25 years experience. This is particularly important when advising on the suitability of some alternative investments such as unlisted securities in private companies. A suitably qualified and experienced ‘real’ SIPP operator should not only be there just to accept all HMRC permitted investments but also to help the Investment Adviser with technical support and guidance on the suitability of investments a for SIPP in general.

Once you have found a good ‘real’ SIPP provider, with access to a director or senior member of staff who can give you this ongoing and in depth-technical support, build up a good working relationship with that person, as they are few and far between, and then watch your own business grow as you widen both the parameters and scope of your existing advice as well as becoming more specialised and able to operate at a higher level than your competitors. So get ‘real’ and be more successful!

Tony Hales

Stadia Trustees Limited