It can be extremely frustrating to have suspended funds in your pension portfolio. Illiquid funds were relatively rare before the financial crisis of 2007/8, as the alternative fund management industry was generally only available to wealthy and experienced investors, pension funds and large family offices. Most illiquid/toxic funds are categorised as Unregulated Collective Investment Schemes (UCIS). They are not suited for QROPS or SIPPs, and should not be recommended or marketed to ‘unsophisticated investors’ or those who don’t fit the criteria as ‘experienced investors’. But they were and still are!
The growth in illiquid/toxic funds
The first stock market crash I experienced was in 1987. Some would call it the crash, even now. 2007/8 was worse though, with commentators likening it to the Wall Street crash of the late 1920s. I tend to agree, as the ensuing chaos has been much deeper and longer. The 1987 crash saw an almost full recovery across the world, excluding Japan, within 18 months. Stock markets were back to pre-crash levels and the global economy continued to run normally. Doom-Sayers had been predicting the end of stock market investment for decades, perhaps forever. They were wrong. The FTSE 100 index of the top UK companies has grown from around 2,200 before the correction to just short of 7,500 today.
We saw the same predictions of doom for stock markets after the financial crisis in 2007/8. Once again, many pundits proclaimed that stock-market investment was finished and that it was time to look at other ways of growing our pension nest-eggs. Additionally, ‘the city’ witnessed huge job losses, with redundant fund managers having to search for new jobs/activities. This led to many new fund launches as bankers, who formerly worked for large international groups, set up their own funds. At this time, there would have been no point trying to compete with previous employers’ mainstream funds as that was a fight which could not be won. They could, however, apply sophisticated alternatives strategies to the retail market and promote them through intermediaries. Specialist fund ‘boutique’ companies thus began to emerge.
The message was always the same: “Equity markets are finished, interest rates are at all-time lows and it is now time to invest in alternative structures if you are a savvy investor.” Five bullets on a fancy power-point presentation were all you needed to know if you were an adviser, and you could navigate the troubled waters of the new post-crisis world by selling and reselling these funds to your clients. They were also wrong as we have seen stock markets recover to new daily highs.
Fortunately, experience can count for a lot more than youthful exuberance. Those of us who have been around for many years drilled a bit deeper into these funds and rejected their use. Some advisers made a policy decision to never recommend UCIS funds as a matter of principle. The key word here was ‘Unregulated’. By the same token, funds which claim they are free of charges and predict guaranteed investment returns should be treated with suspicion.
5 suggestions on how to deal with suspended funds
Almost every week we see yet another esoteric UCIS fund fail, collapse or become suspended. Below are 5 suggestions on how to deal with suspended funds:
- In the first instance, you should note that you are not alone. These failed schemes often have hundreds, if not thousands of victims. Search the web for pressure groups and sign up for social media sites which are trying to take action against the wrong-doers.
- Employing specialist financial lawyers to represent you can be an expensive business; even the best may not be able to retrieve your funds. It is better to join groups as above with a view to organising a ‘class action lawsuit’. You may have to contribute a small amount to pay for legal advice, but you will not have to shoulder the whole burden.
- Make sure that you contact all ‘players’ in the chain. This will include financial advisers, marketers, platform providers and insurance companies, pension providers, trust companies and the fund manager. Encourage them to work together on finding a solution whereby they all contribute to a compensation pot.
- Keep all correspondence that you can find for all service providers above. Web sites can be taken down over-night so make sure you download anything relevant and keep all valuations and switch instructions that you have signed. Retain anything related to risk assessments done by your original advisers.
- Stick with it. Resolving these issues takes time; many in the chain will be trying to release themselves from any liability. Watch out for one party trying to shift blame to another.
Finally, if you can still countenance the idea of using a financial adviser, you should try and find one you can truly trust. Not all advisers are cut from the same cloth as those who may have caused your problem in the first place. A good adviser will be more than happy to demonstrate their credentials/qualifications, and provide references. Thereafter you can then work together to realign your portfolio into suitable and appropriate investments.
If you would like more information on our portfolio rescue service, please complete the form below.