SIPPs – market & regulatory environment
SIPPs, once the preserve of the rich, have over the last two decades become more widely available and accessible to the ordinary investor.
Many product providers and administrators entered the market on the back of the changes in pensions legislation and the fact that SIPPs offered investors the ‘freedom’ to control their pensions with greater flexibility all round. However, the plethora of new SIPP providers has brought its own problems such as accusations that they have hidden extras which mean they turn out to be more expensive than originally envisaged.
The quest for product differentiation, the entry of some of the traditional insurers into the market (often by acquisition) and the recent market volatility have all added to this sector’s problems and culminated in the recent FSA Thematic Review ‘Self-Invested Personal Pensions (SIPP) Operators’ being issued in September 2009.
Paradoxically, SIPPs only came into the FSA’s regulatory regime in April 2007 although many large providers (particularly the life offices) already treated their SIPPs as regulated products, so there were few changes necessary for those players. It did however become apparent that standards among some smaller operators were not high enough bringing into disrepute the whole SIPP market specifically and the pension transfer market more generally; hence the FSA Review.
In addition the FSA has issued a further report looking at the wider issue of pension switching called the ‘Quality of advice on pension switching’ arising from concerns that advisers were being encouraged to move client’s monies into SIPP without considering the appropriateness of such moves.
Overall, the FSA review has served to highlight yet again the need for adviser firms to have a robust selection and review process in place for SIPPs. Such firms will be best placed to come through any regulatory challenges and emerge as strong players in the retirement planning market.
Evaluating & Selecting a SIPP
There are a range of factors that should be considered in selecting a SIPP, and these must be sufficiently comprehensive to achieve a number of different objectives. They must cover the basic due diligence requirements of financial strength – to ensure the provider is likely to remain in existence and have the capital to develop their business and maintain their competitive position – and administration experience – to ensure that the provider has sufficient resources at appropriate levels to provide a satisfactory client experience.
Next, plan features and options should be considered to ensure that all the requirements of the client and Advisory firm can be met. This will involve looking at specific features such as the range of permitted investments, access to a wrap platform and the plan charges. Given the diversity of charges that can be applied in different circumstances, ranges of charges are usually considered with the actual charges relevant to the client checked at point of sale.
These criteria would cover all the main areas of importance, both in terms of general due diligence and in terms of meeting the specific needs of your clients.
Conclusion
The FSA’s Retail Distribution Review sets outs proposals for the future of the UK’s investment advice sector with the issue of the cost of advice a key aspect. Charges of both the provider and distributor will come under greater scrutiny, yet this will provide additional opportunities for those advisers who adopt a structured advice process built around robust product and investment research. Most SIPP’s can be considered to be ‘RDR ready’ with transparent charging structures and the ability for the adviser to add their remuneration.