August 2007

Challenging times

SIPPs have the potential to inject some much needed enthusiasm into the pensions market. However, the surge in new business brought with A-Day and SIPP regulation has undoubtedly brought its fair share of challenges to advisers and providers alike. If the SIPP industry is to continue to move forward it is clear that it will need to first identify and then deal with these issues.

A key challenge advisers continue to wrestle with in the SIPP market is, it would seem, administration. By this advisers mean excess paperwork and long waiting times.

"If I've got any query it's that some providers need everything in writing," says Derek Winsland senior investment adviser at Premier Wealth Management. "You would hope that things evolve, but SIPPs have been around for ten years and its not getting better."

Overall Winsland gives the SIPP market no more than a "generous" seven out of ten for service adding that "there needs to be more trust and partnership between the company, the adviser and the investor."

Richard Meek, principal with Punter Southall, uses a variety of SIPP providers. He agrees with Winsland that the mass market in SIPP products is simply not flexible enough. "With insurance companies it's all about the service levels. If you try to do anything that isn't straightforward it'll blow their system up," he remarks.

At a recent pensions conference Suffolk Life's director of sales and marketing John Moret highlighted the slow service around transfers as a growing issue. "The most worrying aspect is the poor standards of turnaround times on transfer business," he told the Henry Stewart SIPP and Retirement Options conference in June.

Winsland reckons transfer times are the bane of the pension adviser's life. "That's the one thing that holds everything up," he says.

Growing pains

Some of the problems can be attributed to growing pains. Standard Life, for example, simply didn't have the amount of staff it needed to cope with the volume of business its SIPP generated, as SIPP marketing manager Alistair Hardie admits.

"We've been bringing in business that far exceeded our initial expectations," he says. "Manpower has been the biggest challenge. We have a dedicated SIPP customer centre which we've had to grow quite substantially."

The insurer brought in staff from other parts of the business and trained them up to deal with SIPPs, Hardie explains. "We need to be able to demonstrate that we have the industrial sized strength needed for this amount of business," he says. "As we grew the business quite quickly we did face some service issues and have looked for feedback on those."

With 12 years in the marketplace James Hay has, says regional sales director Shaun Sandiford, "had the rumblings on service". The company is currently spending an undisclosed amount of money with IT business Infocomp to upgrade its systems. It is also introducing a price promise on the top 20 Lipper funds. Key though, says Sandiford, is being able to offer a variety of SIPP products to cover all needs.

One of the chief irritants with advisers and investors seems to be the carving-up of the marketplace. It is widely accepted that insurance companies offer what Sandiford calls "SIPP-lite", or - according to Winsland - the "deferred SIPP". The middle tier in SIPPs is the mass market (catered for by different providers depending on who you talk to) and the "real SIPP market" is the bespoke, top end.

"The problems typically start with accessing more specialist types of investment or buying commercial property when the provider starts trying to insist that they have to use the panel, or the lender or solicitor that they specify," says Meek. "A lot of these SIPP people will have existing lawyers and lender relationships. They don't need to be told who to use."

The price of flexibility

But of course for a SIPP provider, less flexibility means less cost. "There's a difference between an insurance company SIPP where the customer has to invest some money in the insurance company funds and then can access other funds through links and the other end of the spectrum, where the smaller more boutique SIPP providers operate with complete flexibility which customers pay for," says Hardie.

Standard Life has a defined stockbroker, a panel of fund managers and appointed service people. "We have to watch our costs and I tend to view this as us providing clearly defined paths to service providers," Hardie adds.

AJ Bell, chief executive Andy Bell points out that it doesn't seem reasonable to want to buy property through a SIPP or use an unusual fund manager without having to complete some paperwork. Nor is it unreasonable to keep things easy and simple in a lower cost product, which is why his company has services for each section of the market.

"On SIPP Centre an IFA can register himself, apply online for his client, transfer the money online, invest money online and commence benefits online, so in theory cradle to grave there shouldn't be any paper for us with SIPP Centre, and we can only offer a low cost product in that environment because we have taken the paper out of the job."

The AJ Bell product is at the higher end of the market, but that too has its limits. "The more flexible you are willing to be the more likelihood there is of your service going off the rails," Bell explains. "Because if you start allowing unquoted shares, joint property ownership with the member and in specie contributions they're the things that will land SIPP providers in trouble. We've said no on all of those things."

In other words, for a provider like AJ Bell, which is trying to capture a large share of what could be defined as higher end mass market, there are limits in order to maintain margins.

Tailor made service

The solution for advisers with clients who they know are going to need a specialised service seems to be to get the choice right from the outset. Bespoke, or niche providers allow the client to use whoever they want and do whatever they want within the rules, for a cost.

Punter Southall runs its own SIPP, into which Meek puts his more active SIPP customers. One of his clients had £3.5m in what Meek calls a leading non insurance company SIPP and was trying to sell three commercial properties. The SIPP company, explains Meek, insisted they use their own lawyer and as a result the service has been appalling. The client had no connection with the lawyers so he had no leverage, and he nearly lost the sale on one of the properties.

Consequently the client is transferring to the Punter Southall SIPP. "I think sometimes the solution is to find a niche provider," says Meek. "I'm bound to say that but it's true. Sometimes you need somewhere of a size where each requirement of a client can be thought about on an individual basis and an individual solution found."

The other way to do it is to use a simple SIPP with its lower costs until such time as the client wants to move up a gear, says Meek.

At James Hay Sandiford believes that providers should offer a full range whether the investor needs the complexities straight away or not. "The propositions out there have to get better," he says. "With a shrunken down service the support will be shrunken down. If you only ever want a SIPP-lite fantastic, but for a lot of people they need something more robust and long standing that can handle complexities."

Sandiford and others also raise queries about the future for the more niche SIPP players. According to Bell there are about 160,000 SIPPs out there. Of these 37,000 are with James Hay, 27,000 with Standard Life and 26,000 each with AJ Bell companies and Hargreaves Lansdown. That leaves 44,000 SIPPs with around 50 other providers. A lot of these lower number SIPPs are IFAs selling to themselves to access the bespoke SIPP, but that bespoke nature is precisely why they haven't been able to grow. "It's not a scalable proposition and advisers need to be aware that when they're recommending at that level, under regulation now they have to think, is there sufficient infrastructure around those firms?" asks Bell.

Hardie wonders why more small providers haven't fallen out of the market and thinks that the danger zone for some only starts now. "Have some of the smaller providers understood the true costs of what is needed to be regulated in an ongoing way? There is an explicit cost to that and as more providers come in with new offerings and providers revamp existing offerings there will be pressure on costs and they will have to bring in new business to meet that."

Jo Tura
Freelance Journalist