What Do Diamonds Have to Do with SIPP Mis-Selling?
Diamonds are known for being expensive and sought-after gems. It is understandable, therefore, that some people invest in them when given the opportunity. After all, from a layman’s point of view, diamonds are consistently expensive and consistently sought-after. This must make them a potentially lucrative investment, right? Why not put your SIPP into a diamond-related scheme?
The reality, however, is that buying a diamond in a shop where it is easy to understand the value of the gem is very different from investing your pension in a scheme based on diamonds.
This reality can result in you losing money. Often, this means losing your financial security because of a diminished or completely lost pension pot.
Diamonds and SIPP Mis-Selling
SIPP are self-invested personal pensions. They are an option open to many people. They work by taking your pension and investing it privately. In theory, this gives you more control over where your pension is invested and, potentially, more control over the returns you receive.
In general terms, there are two types of product you can invest a SIPP in:
- Regulated investments – investments backed by government-run schemes that can pay you compensation if things go wrong
- Unregulated investments – investments not covered by government-run compensation schemes
Diamond SIPP products fall into the second category.
In addition, diamond SIPP products are treated as high-risk investments.
As a result of both these facts (i.e. diamond SIPP products are unregulated and high risk), they should never be promoted by a financial advisor to anyone.
That said, a financial advisor can propose an unregulated and high-risk product to an individual looking for a SIPP investment, so long as they don’t promote the investment. Even this doesn’t tell the full story, however.
This is because financial advisors can only propose unregulated and high-risk investments to people who have experience of investing and who have a high net worth. Most SIPP investors don’t fall into this category.
Therefore, if you bought a diamond-based SIPP product, you may be the victim of mis-selling unless you are a sophisticated investor with a lot of money.
Types of Diamond SIPP Products Offered to Pension Holders
There are two main types of diamond SIPP product:
- Mining and production – this usually involves investing your pension to buy shares in a diamond mining company
- Diamond trading – this involves investing in diamonds that are already mined and cut with the anticipation they will rise in value
In both cases above, there is no guarantee of return. In terms of the mining and production company, returns depend on the profitability of the company, i.e. its ability to find a suitable location to mine and then to be able to extract enough diamonds of sufficient quality to make a profit.
In relation to diamond trading, returns depend on diamonds rising in value by a high enough amount to deliver a return, keeping in mind the value of diamonds could just as easily fall.
You can see from the above examples the risks involved in diamond investments.
Unless your financial advisor fully explains this to you, and you are a sophisticated investor, you may be the victim of mis-selling if you bought a diamond-based SIPP.