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Understanding the scale of the SIPP mis-selling scandal

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You have probably heard about the various ongoing mis-selling scandals. With all the adverts, and news stories, it is hard to miss. But there is a scandal brewing that could end up on a scale as yet unseen – the SIPP mis-selling scandal.

We don’t fully understand the scale of the problem yet, but most experts believe it is going to become substantially larger than current estimates.

What Is the SIPP Mis-Selling Scandal?

The SIPP mis-selling scandal involves financial advisors convincing pension holders and savers to invest their money in a SIPP – a Self-Invested Personal Pension. The pitch financial advisors make when selling SIPPs is often to promise high returns on investment.

Many of the SIPP investments that people bought were highly risky. They can also be unregulated investments, so are not covered by the Government's compensation scheme. In many cases, the people buying these products did not fully understand the nature of the investment.

This is important as high-risk and unregulated investments are only suitable for experienced investors and high net worth individuals.

Sophisticated Investors

Normal pension holders in the UK are not sophisticated investors, so don’t meet the above criteria. Despite this, SIPP investments that people put their hard-earned money into include farms in South America, airport car parking schemes, green energy projects, and more.

Why is this a problem? The Financial Conduct Authority regulates financial advisors in the UK, making sure they operate to a certain standard. One of those standards is ensuring an investment is suitable for a client. This involves getting an understanding of the client's knowledge of investing and his or her investment experience. The financial advisor must also learn about the client's investment objectives and their attitude to risk.

High-risk and unregulated investments, should not, therefore, be sold to people with minimal investment knowledge or experience. Despite these rules, unregulated investments appear to have been sold on a large scale in the form of SIPPs.

What Is the Scale of the Scandal Then?

The SIPP scandal is being called one of the biggest mis-selling scandals ever, with the total value of claims potentially reaching £10 billion. If that were to happen, the SIPP mis-selling scandal would be the biggest scandal since PPI. It could also involve hundreds of thousands of people who were mis-sold a pension.

We don’t know the exact scale of the problem, however, because the industry and regulators are only starting to understand exactly what has been going on in the SIPP investment market. Part of the issue is there are large numbers of people who don't yet know they may have been mis-sold a SIPP investment.

There is also a lot of variation among SIPP providers too, about whether they include non-standard assets in the SIPP products they sell.

However, research by the FCA shows that as many as one in eight people who bought a SIPP believe they may have been mis-sold.

For many experts, we are at the tip of the iceberg when it comes to SIPP mis-selling. Issues relating to the scandal are currently going through the courts, plus there is increasing coverage of the scandal in the media. This will lead to many more investors coming forward expressing concern about mis-selling.

The scale of the scandal could get bigger yet.

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