An FSA alert has warned advisers investing client money through Sipps in unregulated overseas property firm Harlequin Property to be careful regarding investment suitability.
In the notice, posted on Friday, the regulator says it has seen an increasing number of Sipp schemes with underlying investments in overseas property purchased through Harlequin.
The alert says: “If a financial adviser recommends a Sipp knowing that the customer will sell current investments to invest in an overseas property, then just how suitable the overseas property investment is must form part of the advice given to the customer.
“If, having taken into account the customer’s circumstances, the financial adviser believes that the original investment is more suitable for the customer than moving to an overseas property, then the financial adviser must explain why the investment in the overseas property via the customer’s Sipp is not suitable for the customer.”
The alert goes on to say advisers should conduct thorough due diligence on the developments being sold through Harlequin, which include consideration of how building work is progressing on the various sites and any factors involved in reported delays to completion, establishing precisely how their customers’ funds will be used during the construction phase and the terms of their purchase agreements.
It also says advisers should carry out a full assessment of all publicly available information about the overseas property investments through Harlequin Property and all parties associated with these investments.
A Harlequin spokesman says: “Harlequin fully endorses the FSA Notice which provides guidance to regulated IFAs as to the due diligence they should undertake prior to investing in a Harlequin property.”