Recent fines by the FSCS to a few SIPP providers for exposing clients to certain high risk, non-standard investments are understandably increasing the threshold for approval for all non-standard assets. However, more reliable non-standard investment vehicles and providers can still form an important part of SIPP investors’ portfolios to enable them to achieve the returns they need to fund their retirement, says Stephen Findlay, CEO of BondMason, the Direct Lending platform.
An estimated one million people have taken up a SIPP since the Government introduced the “Pension Freedom Reforms” in April 2015 and SIPP providers are experiencing increasing demand from investors for non-standard investments, such as Peer to Peer (P2P) Lending, in order to target a better income for retirement. In line with this, there has to be an open discussion between SIPP providers and investment providers about the vast discrepancy in the quality of non-standard investments available to SIPP clients, and the perceived risk that they bring.
Stephen Findlay commented:
“Lending, including P2P Lending, can be an effective way of accessing attractive risk-adjusted returns for your portfolio. Our clients have achieved an average gross return in excess of 8.0% p.a. across 2015, 2016 and 2017. It’s therefore understandable that more and more SIPP clients are asking their providers for access to non-standard assets including P2P lending.
“The recent fines are the result of investments such as store pods, carbon credits and overseas property developments - which may appear to offer attractive returns at the outset, but can be difficult to assess given their esoteric nature. These high-profile cases can be damaging to those who offer legitimate and well-structured non-standard investments, leading SIPP administrators to restrict investment in any non-standard asset.
“P2P lending is a growing and complex asset class, with a wide range of product providers, so it can be difficult and time consuming for investors to understand the risks and opportunities in this market. We work closely with SIPP providers so that they can review, conduct due diligence on, and get comfortable with our non-standard investment offering. We continually assess the overall market for Direct Lending, ensuring our clients and partners understand the risks as well as the opportunities”
John Dowding, Technical Director at Morgan Lloyd, a SIPP administrator which works with BondMason to offer a SIPP-compliant P2P Lending service, commented:
“We recognise that clients are searching for better returns. The point is that many non-standard investments, such as these store pods and carbon credits, result in very little or no return of capital, and indeed many have been uncovered to be outright scams, although they have been promoted to SIPP providers quite aggressively. There is certainly significantly increased caution amongst SIPP providers regarding esoteric non-standard investments.”
However, more legitimate non-standard asset classes – including hedge funds, structured products and P2P Lending – are becoming increasingly popular with SIPP providers for portfolio diversification.
John Dowding said:
“When it comes to P2P Lending, I would say it comes high up the scale of respectability in terms of the non-standard asset scale, not least because of their endorsement as an acceptable investment for ISAs.”
As with any investment, understanding and managing risk are essential. The challenge is to adequately assess the investment opportunities available. Whilst caution is important, being classed as non-standard does not automatically mean an investment opportunity should be disregarded.
More important than whether an investment is classed as standard or non-standard, is the quality of the due diligence processes undertaken to make an appropriate assessment of the risk of an investment, and the potential for those assets to become a liability. If there is extensive due diligence conducted on a non-standard asset, and the risks and returns can be understood, then including an allocation within a SIPP portfolio should be considered.
“When vetting lending partners and P2P lending platforms, we assess each platform rigorously, on its experience and credibility. This is one of our most important principles. We want to see that they understand risk and return, and will be able to provide appropriate loan investment opportunities for our clients, including SIPP investors. To date, we have only approved 33 out of more than 100 platforms that we’ve reviewed”, said Stephen Findlay.
For its SIPP offering, BondMason works with administrators, like Morgan Lloyd, to deliver a product which benefits from the firm’s due diligence process and the selection of suitable loans from appropriate lending platforms. The team at BondMason has invested considerable time in developing a bespoke operational infrastructure that ensures the SIPP Service is fully compliant and can meet the needs of SIPP administrators and their clients alike.
Sheena Munsami Tel: +44(0) 7577 778 343
Georgina Whittle Tel: +44 (0) 7835 770 967
BondMason is the UK's number one direct lending service exclusively for investors: sourcing and filtering the very best lending opportunities from across the entire UK direct lending and P2P market. BondMason conducts ongoing due diligence on the UK’s P2P platforms and has reviewed over 100 platforms to date.
Targeting gross returns of 8%+ p.a, BondMason delivers pre-selected loans from its approved direct lending network through a single portal, helping investors to navigate the complex P2P marketplace and making it simple for them to build and manage their direct lending portfolio.
With access to more of the UK’s direct lending market than anyone else, BondMason’s experienced investment team vets every loan using rigorous selection criteria, focusing on asset-backed lending and diversification to minimise risk and achieve maximum performance.
About BondMason’s SIPP offering
BondMason works with administrators such as Morgan Lloyd and Westerby amongst others to provide a robust direct lending infrastructure that is HMRC and SIPP compliant. They actively manage P2P Lending risk by only working with a select number of approved partners out of the 100+ platforms they have passed through their due diligence process to date. The loans are curated, asset backed or property backed, and diversified across a minimum of 50 holdings.
The BondMason model means that SIPP clients can liquidate their positions when required and within 48 hours.
About Morgan Lloyd
Morgan Lloyd was formed in 2003 to provide professional Pension Trustee and Administration Services for Small Self-Administered Schemes (SSAS) and has enjoyed significant organic growth since. In January 2011 Morgan Lloyd entered the Self-Invested Personal Pensions (SIPP) market by establishing Morgan Lloyd SIPP Services Limited.
Morgan Lloyd is a wholly owned subsidiary of Clifton Asset Management Plc and has no ties to insurance companies or fund managers. The Morgan Lloyd team offer a dynamic and client focused approach to self-invested pensions administration. With over £270 million of assets under administration Morgan Lloyd has gained a reputation as an efficient and knowledgeable Pension Trustee and Administrator.
Morgan Lloyd is a registered member of AMPS (Association of Member Directed Pension Schemes) and SIPP firm Morgan Lloyd SIPP Services Limited is authorised and regulated by the Financial Conduct Authority (FCA).