Ethical Forestry was an investment product that many people invested in using a SIPP (self-invested personal pension), but it went horribly wrong. Many investors who lost their money found they had been mis-sold the product in the first place. What went wrong, and what lessons can we learn?
What Was Ethical Forestry?
Ethical Forestry was a company based in Bournemouth which invested in plantations of Melina Hardwood trees. Investors bought plots of these trees.
Melina Hardwood comes from the Gmelina Arborea tree, also known as beechwood. It is a fast-growing tree that has a wide range of uses because of its strength and lightness, including furniture manufacturing, construction, sports equipment, and more.
The tree naturally grows in Asia – specifically, in India, Thailand, Vietnam, Cambodia, Laos, and in parts of China. Ethical Forestry’s tree plantations were in none of these countries, however; they were in Costa Rica in Central America.
The pitch for this investment to SIPP holders was primarily based on the environmentally-friendly nature of the concept as well as the high returns the investors would receive. Those returns were usually promised at around 15 percent.
Why Did It Go Wrong?
The Costa Rican plantations of these trees were plagued with problems, causing the company to go into liquidation. A lot of this was due to weather including, in 2016, a hurricane which caused significant damage.
So, the company failed, investors lost their money, and the Serious Fraud Office launched an investigation into Ethical Forestry.
What About the Investments?
Around 3,000 people invested in Ethical Forestry between 2013 and 2016. Many of those people invested their SIPP after receiving a cold call with the offer of a free pension review. In total, about £86 million was invested in Ethical Forestry.
There are several major issues with this. Firstly, the Financial Conduct Authority did not regulate Ethical Forestry investment products as the FCA does not regulate this type of investment.
In addition, Ethical Forestry was a high-risk investment.
Compounding this is the selling techniques that convinced pension holders to transfer their pension into a SIPP and then invest it in Ethical Forestry. This is because most pension holders who have the potential to move their pension to a SIPP are retail investors. This means they have limited investing experience.
The regulations are very clear when it comes to this – investments that are unregulated and high-risk should only be recommended to investors who have a lot of experience and who have a high net worth.
Compounding this is the fact that many people who bought into the Ethical Forestry scheme say they were not made aware of the scale of the risks involved.
As a result, there are major concerns that many people who invested their pension in Ethical Forestry were victims of mis-selling.
Lessons to Be Learned
Choosing where to invest a SIPP is a major decision and should only be taken after you’ve received advice from a regulated financial advisor. Be aware of offers too good to be true, offers made as a result of a cold call, or any other unusual practices. The risks of not protecting yourself like this are too high, and there is too much at stake.