The first source of information is of course the promotional literature for the investment, but being unregulated, it is wise to work on the assumption that any information provided is false or embellished, and can be relied upon only if it can be verified through alternative reliable sources. The method of promotion itself can also be a strong indication of the quality of investment. Anything that needs to be ‘promoted’ or effectively pushed into the marketplace has not found sufficient investors through otherwise advised sources. Investigation should first take place on the promoter, the company and its directors, and checks made against the FCA register and Companies House director records to establish their good standing and credentials.
The investigation of the proposition should then include:
• Establishing the provider, their legal status and their director/controllers
• Understand the underlying asset, its structure and how returns will be achieved
• Looking at Companies House records – do the directors have a history of failing or have companies opened and closed within rapid succession?
• Where is the investment domiciled and what is the location of its assets? Is this in a high-risk area as highlighted in the Corruption Perception Index, which looks into how much corruption is perceived to take place within a given country?
• Google the history of the main directors. Do they have experience in the given field of investment? Tools such as LinkedIn can be valuable. It is difficult to hide a chequered past from the internet
• How does the company deal with complaints? If a large number of unresolved issues are made by current investors this should be an indication on how professional the company is in its operation
• Liquidity within the fund is a key indicator of whether the investment has a long tie-in with little or no secondary market. What would happen in the event of death and divorce?
• Should a fund be heavily geared, this may suggest that the company is struggling to raise capital through traditional sources
• Is the investment deliberately a complicated and opaque investment structure with literature and wording designed to confuse the unwary?
• Check the Financial Conduct Authority’s ‘Fraudulent names list’ for suspect companies and individuals
• Check the Serious Fraud Office website for any connections to the company or directors
• Check the individual insolvency register to ensure that no parties involved in the company have been made insolvent
• Are the claimed investment returns plausible?
The above checks are not exhaustive and, if during the investigation process any concerns are raised, then more detailed scrutiny should be undertaken. There are specialist third party due-diligence companies that can provide additional material, but the decision as to whether or not a particular fund can be accepted will always lie with the Sipp operator.
