Is your client’s SIPP safe?

For financial professionals only

Over the past few years, you may have read about many smaller SIPP providers who have gone into administration, the most recent one being Liberty SIPP. These stories are unsettling and might leave you wondering if the Parmenion SIPP is safe.

Industry background

The traditional SIPP was designed for what the FCA call ‘sophisticated investors’. SIPPs were not even a regulated product until 2007. They were intended for knowledgeable investors with a good understanding of different types of investment who could choose for themselves where to put their pension fund. Quite often, SIPPs would invest directly into small business shares and commercial property, along with direct equities and investment funds.

The fact that SIPPs were able to invest in a wide range of regulated and unregulated investment schemes led to them attracting money from less sophisticated investors, using their pension funds for some very risky ventures. Opportunities to invest in schemes involving hotels in the Caribbean or forests in Cambodia were pitched to an unsuspecting public.

Duty of care

Retail investors have come to expect their pension providers to ensure that the investments they are making with their life savings are reasonably secure.  They have a right to assume that sufficient due diligence has been carried out on the investments that providers allow their customers to invest in, to confirm they are at least appropriate for retirement savings, and not just pure speculation.

Unfortunately, historically this was not always the case. Many investments have since been found not only to be high risk but in some cases fraudulent. The FCA has insisted that those SIPP Providers that did not take adequate care in making available such investments must compensate clients for losses, forcing some providers out of business.

The Parmenion approach

Parmenion SIPP was launched in 2014 following the Pensions Freedom changes. There had already been three FCA Thematic Reviews of the SIPP market, and due diligence was becoming a critical process for providers. This led to Parmenion structuring its scheme rules, such that it only allows investments in ‘Standard Assets’ into our safe custody.

Standard Assets, as defined by the FCA, are those capable of being accurately and fairly valued on an ongoing basis and readily realised within 30 days, whenever required.*

Parmenion was among the first platform DFMs and one of the first platforms after Pensions Freedom to offer flexibility to DFM/SIPP clients.

Parmenion Investment Management is our in-house manager and our well qualified investment team have an outstanding, independently verified track record of performance which is the key to achieving successful retirement outcomes for clients.

Our investment process is based on robust fund due diligence. We scrutinise every fund we hold in our portfolios and their managers on selection and this robust process is repeated formally at least annually.

If, in the unlikely event that Parmenion as a SIPP Provider were forced into administration, your clients’ pension funds would still be held by the fund managers that we have invested with and are ring fenced. Any cash on account your clients may have with us is also held safely in client money bank accounts, which cannot be used to cover Parmenion debt.

This means you can take comfort that your clients’ pension funds built up over your clients’ working life, and now invested in a Parmenion portfolio through our SIPP, are in safe hands.If you have any further questions, please do not hesitate to contact us on 0117 204 7678.

*Sometimes Standard Assets can become illiquid in extreme circumstances. Property funds, in particular, will suspend trading to stop having to rush through sales of commercial property whilst markets are not behaving as expected – such as through this COVID crisis. Funds that are managed well will suspend to protect client’s funds.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.  

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