Expert view: Ucis plans only for experienced

Thankfully, this is now attracting the attention of the Financial Services Authority (FSA).

One recent example was a client with no investment experience who needed the funds within her Sipp to buy an office (that could be rented back to her business).

The correct investments here would be lower risk and shorter term – cash and perhaps, at a push, short-dated investment grade corporate bonds.

Instead, she was sold into investments including a student accommodation fund and a Polish buy-to-let fund – each intended only for experienced and/or sophisticated or high net worth investors for the longer term (ten years or more).

Other unregulated collective investment schemes (Ucis) we have seen promoted by various firms include Brazilian teak plantation funds, land rent funds, bridging loan funds and life settlement funds. All fairly esoteric and carrying risks of their own. In our experience, few ordinary investors really need these types of fund.

The Sipp and the Ucis within the Sipp were sold by the IFA arm of a top UK accountancy and business advisory firm.

The client came to us after moving accountants and asked us to review the Sipp with a view to immediately buying a commercial property. We asked the Sipp provider to move all assets into cash but were told the Polish fund had at least a three-year wait on it to release the cash, while the student accommodation fund had a  six-month waiting period.

The client complained to the Financial Ombudsman Service (FOS), which found in her favour, as there was no risk warning on the unregulated funds to say there was no second market for the fund (as they were not traded on any recognised stock exchange).

The ombudsman was also perplexed as to why Ucis were recommended for short-term investment when there are so many regulated, tradeable investments out there that would have been a better fit.

Unregulated funds could be the right thing for some clients as part of a well diversified portfolio – but only in a minority of cases.

Sadly, in most of the unregulated funds that hit the news investors can’t access their money or suffer investment losses that are irretrievable. Further, there is no access to the Financial Services Compensation Scheme (FSCS) - which is the compensation fund of last resort for customers of authorised financial services firms.

• Iain Wishart is a chartered financial planner and owner of Edinburgh-based Wishart Wealth Management