IFAonline reveals how easy it is for anyone to earn 12% commission pushing 'SIPP-ready' property club investments in an Egyptian hotel.
We know advisers receive dozens of adverts for these kinds of plans every week but what are the risks?
David Ingram, director of support services provider threesixty, felt one scheme deserved further investigation but it is by no means an isolated case.
He agreed to go undercover to find out just how much due diligence one property club provider did on the highly incentivised people selling its products......
"Why Samra Bay Marina & Spa Resort, Hurghada, Egypt?"
1) We want you
14 April 2011 12:57pm - Ingram receives an unsolicited email advert entitled ‘Agents wanted for new SIPP product - Up to 12% commission' from Orbit Alliance, the selling agent for developers The Orbit Group.
2) Can't spell? Come in!
The ‘Becoming Part Of Our Network' button is riddled with errors: "Orbit Alliance understands what it takes to run a successful distribution network, and provide our agents with all of the tools neccersary [sic] ...and great commission with quartely [sic] sales incetives [sic]."
3) All welcome
He clicks through and is taken to a contact details form. Name, telephone number and email address are the only compulsory information; company name is optional; no request for FSA number
4) No qualifications needed
After a few minutes Ingram is called by Orbit. In a 90 second chat, Ingram volunteers he is not an IFA, and does not say how he is employed. The caller asks for none of this, or any information regarding how qualified he is to promote the high risk investment for SIPPs.
5) All rooms come fully furnished!
One hour after the initial email, Orbit sends a summary of the Samra Bay project - with an Egyptian due diligence report on the site.
6) 12%? I want in
18 April 2011 10:17 - Ingram emails Orbit enthusiastically asking for the agency paperwork; "This all looks really good. Surprised that you need people to sell it for you!"
7) Sell! Sell! Sell!
Ten minutes later - Orbit Alliance sends Ingram an Agent Commission Agreement to sign in order to begin "marketing" the investment.
"Apart from confirming my contact details, that I was interested in the opportunity, that it was OK to send the paperwork to me by email and asking for my company name - I stated I didn't have one at present - there was nothing.
"I volunteered I wasn't a financial adviser but knew people who I thought might be interested through my own business. They didn't even ask me what that business was."
"The literature talks about this as a SIPP investment and also talks of the right to occupy rooms, but does not point out this right should be removed for a SIPP investment."
The agency agreement:
Orbit Alliance said when any IFAs seek to become agents it uses a third party who is a former IFA to judge their suitability.
But looking through the agency agreement, the risks to any IFAs considering this "opportunity" seem huge, even BEFORE advisers' advice liability.
For example -
"3.3 For the purpose of marketing the Units, XYZ [the agent] shall only use such information and data as are contained in the Materials for the relevant product.
"5.1 Orbit Alliance does not assume any liability for the correctness of such documents, materials and information. In this respect, the content of the agreements to be concluded between the contracting parties will be authoritative."
So agents "marketing" this investment are not allowed to change the only documents they are allowed to use to promote it, but if the paperwork has any mistakes, Orbit is absolved of responsibility, leaving the agent to carry the can.
Alex Morris, partner at IFA Financial Relationships, said: "UCIS do have their virtues if run properly.
"I would invest in a UCIS after doing the right due diligence, with my own money, albeit a max of 2-3% in a massively diverse portfolio - but would not touch this with a barge pole."
Orbit Alliance responds:
Barry Clark, Orbit Alliance's marketing director, said:"After an 18 month due diligence process in which we obtained legal advice and contacted the FSA perimeter guidance team we started to market our individual hotel rooms that would be sold as non regulated commercial property purchases.
"We looked to make our product compliant with the requirements for investment using SIPP and SSAS pension funds.
"Moving forward we will look again at the agreement and take the points raised in the article into consideration. Only six weeks into the campaign means it is positive we outline any teething issues early on.
"We will also look to smooth out and ensure there are more robust systems in place and ensure better training and handling of "potential agents".
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