August 2007

Sippalikes lookalike

Popularity can have a very nasty sting in its tail. Whether it's the season's must-have ladies' bag or a breed of pedigree dog, the object of popularity inevitably risks being devalued, or even discredited, by a flood of cheap imitations. It may not matter too much with some things, but with dogs and pensions I believe it does very much.

So it's more than sour grapes which causes me to be highly suspicious of the rash of 'SIPP Lite' offerings that have hit the market since A-Day, and sceptical of the welcome given to them in some quarters of the industry. I stand with the independent adviser - IFG's Donna Bradshaw - who has described them as "... 'pseudo Sipps' because they are really personal pensions (PPs) that offer a wide range of investment funds".

Whatever you call them - pseudo SIPPs, SIPP Lite, near-SIPPs or Sippalikes - they have been regulated and can call themselves SIPPs.

It is obvious why such products have been launched - SIPP is financial flavour of the decade. Since its launch, as a niche service for high net worth clients, SIPP's appeal has become increasingly democratised, so that anyone from middle management upwards is now likely to consider a SIPP. This is particularly true if they have existing benefits from past employments to consolidate.

Career changes

Probably the most important factor in SIPP's popularity - even before the helping hand from A-Day - has been the radical change in management career patterns that has taken place over the years. With 'jobs for life' long dead and short term contracts and project-based appointments now becoming increasingly popular firms are able to upsize and downsize at will (as their fortunes and ownership change). This breeds a short term approach by career-oriented employees, who increasingly see themselves as quasi-self employed, and see their employers as temporary customers for their skills, as they make their way up the earnings and aspirations ladder.

This gun-slinging style has bred a more entrepreneurial and independent approach to providing for the future, which accounts for the explosion in SIPP sales at the expense of conventional pensions products. However, it has also led many to ignore pension investment altogether, in favour of riding the buy-to-let property boom. For some, that has been a serious, long-term business decision, made with a view to creating an alternative business that could become full-time. However, for others a bit lower down the earnings scale, it is likely to be as much a style or fashion statement as a hard-headed strategy.

Research has shown us that, along with fear and greed - neither of them are conducive to clear long-term thinking - client aspirations are a major force driving our business. They have given us a booming market for SIPP - and for its most serious competitor, buy-to-let.

No wonder then, that a rash of new providers have entered the SIPP post A-Day gold rush. It's no wonder that, faced with both the sophistication and service levels of established providers and the lure of bricks and mortar, they should look to compete solely on price. The result (as with wrap) is a crop of hybrids that sail under the SIPP flag, but simply cannot offer the lifelong flexibility and choice of the real thing.

Long term flexibility

Of course, for some clients, they will fill the bill as a first step. However, will they deliver when those clients need to progress beyond a second step, or a third? Even if they extend their offerings, how will they support the service levels needed for a full SIPP? They've cut functionality and choice to the bone, just to keep their prices competitive - so can they really match the levels of investment that we and the other major providers put into their platforms to ensure they meet the growing needs and expectations of advisers and their clients?

Choice and service define SIPPs, and if either is lacking then it just isn't a SIPP. It's not as if real SIPPs didn't already offer entry level solutions. Our own James Hay range currently includes an eSIPP entry model, with no minimum and transaction-only charges, for those wanting simple choices and relatively little involvement; a mid-range Select SIPP for funds of £50,000 plus, with a minimal annual charge only and the option to roll-over from collectives into direct open market investment (and back again); and a full a la carte private client SIPP at the top of the range..

Excellence can come in many shapes and sizes, to meet different needs and pockets. Ask Mercedes-Benz, ask Audi, ask BMW and Porsche.

Shaun Sandiford
Business Development Director
James Hay