Why you should care about where your SIPP provider gets their business
SIPP providers have never been more under the microscope than they are now. Over the years, the FCA have carried out numerous reviews into the sector and implemented changes to how providers should operate. And, as we looked at last month, there has also been a number of legal challenges concerning SIPP-related matters.
As a result, we have seen many providers step up to the challenge and adapt their offering and working practices. Others have chosen to exit the market by way of consolidation, while some have been left with no choice.
Most advisers we work with are looking for providers with who they can build long-term relationships with. As well as providing a good service for their clients, we often have advisers who use us as a sounding board, talking through client scenarios and working together to achieve good outcomes for their clients.
So, does it matter where a SIPP provider gets their business from? We think it does and that it should be one of the key questions that you should ask any provider you work with. Not only will this help you to understand how the provider runs their business, but it may also flag any potential issues that could arise with that provider in the future.
To give you a feel for the kind of considerations we look at when taking on new clients and drawing on what the FCA have asked the industry during previous consultations, these are some of the areas you may want to consider.
How the business is introduced – part 1
At IPM, the vast majority of our new clients come to us via FCA regulated advisers. We only promote our services to the financial services industry and do not target the ‘direct to consumer’ market. IPM is not regulated to provide advice or offer an investment solution, nor do we want to be!
By working with financial advisers, we can be confident that people are choosing IPM because our services best suit a client’s requirements. Also, we build our business model on having long-term relationships with clients. It is not good business for us to take on clients who may only be with us for a short period of time, although we do appreciate that, at times, circumstances change.
This business model helps us to maintain our high standard of service as well as keeping our costs consistent and competitive. Did you know that the annual administration fee IPM charges has not changed since 2001 and that we’ve never levied an establishment fee?
How the business is introduced – part 2
The way business is introduced to us is something we must feed back to the FCA.
In the past, there have been examples where SIPP providers have established relationships with unregulated introducers, who have then ‘recommended’ unregulated investments which may not have been suitable for the client. We have been approached about establishing such relationships but have always turned these away.
While the topic of investments is something we will cover in a moment, where a provider is accepting business from an unregulated introducer into an unregulated investment, the only regulated party involved is often the SIPP provider.
Should the investment then fail, or the client suffer significant detriment, the only regulated entity in these circumstances would be the SIPP provider. This can, in turn, pose questions about the long-term suitability of that provider.
The investments permitted (both now and historically)
Some argue that a Self-Invested Personal Pension should allow clients to do just that: self-invest as they wish. However, as a SIPP provider, we must balance that flexibility alongside the responsibilities placed upon us by both HMRC and the FCA.
Before 2006, HMRC published a ‘permitted investment list’ – a clear guide to providers, clients, and advisers as to what was acceptable in a self-invested pension.
Since 2006, (pension simplification, who remembers that!?) HMRC’s permitted investment list no longer exists. So, since 2006, SIPPs can, in effect, invest in anything. However, certain investments come with tax charges – residential property being an obvious example.
The reality is that most SIPP providers will operate their own version of a permitted investment list, which is a good starting point to ascertain the kind of business they will accept. While IPM operates such a list we will look at investments that aren’t on our list on a case-by-case basis. For example, we may consider quarterly dealing hedge funds where a client has suitable experience.
In 2016 the FCA introduced its non-standard investment rules for SIPP providers. In short, an investment is deemed non-standard if it is not regulated by the FCA and it is not readily realisable within 30 days.
If a provider wishes to allow non-standard investments, then:
- This will significantly increase the amount of capital adequacy they have to retain
- They will have to undertake significant due diligence on the investment and keep this updated on a regular basis.
Part of the reason this was introduced was that a few SIPP providers had historically permitted a large number of investments which would now fall into the non-standard category. Some of these investments have led to client detriment in terms of the value of their SIPPs and, in turn, caused SIPP providers to cease trading altogether.
Understanding what a provider will allow in terms of investments, alongside what they have allowed historically, will give you a good understanding as to whether any issues are likely to crop up for that provider in the future.
Online SIPP, platform SIPP, full SIPP?
One of the good things about the SIPP market over recent years is the development of the many different types of SIPPs now available.
Historically, most SIPP providers were similar to IPM in terms of offering a full SIPP. However, in recent years we have seen lower cost options offering reduced investment flexibility come to market, as well as SIPPs which are predominately managed online.
We welcome this innovation and believe there is now a SIPP offering which suits each person’s requirements. It also allows you to identify where a provider’s strengths and intentions lie.
For example, we often hear that a client has an old property SIPP with XYZ provider which ran for many years with no problems. However, as time has gone on and the provider has developed their range of SIPP offerings, it has become clear that they are more geared up to online and the lower cost end of the market rather than the bespoke end where IPM sit. This has led to a drop in service and support.
Depending on the type of SIPP you are looking to establish, ensuring that the provider concerned has a long-term appetite for the type of business you are looking to introduce is important. You don’t want to have to move that SIPP in a few years’ time.
Get in touch
If you want to have a chat about the potential of SIPPs for your clients, or any other aspects of pension planning, please contact us. Email info@ipm-pensions.co.uk or call 01438 747 151.