Endangered species: John Moret on the future of bespoke SIPPs

Genuine bespoke SIPPs are becoming an endangered species, writes John Moret. He explains why some self-invested pension providers are on a s(l)ippery slope

In preparation for a talk I gave recently at an AMPs conference, I conducted my own survey of the top thirty or so SIPP providers.

That produced some interesting results and a summary will be available to participants shortly.

It enabled me to resize the market and I now believe a more accurate assessment is a market size of just over 1 million SIPPs with total assets of £150bn.

About 70% of the assets in those SIPPs now sit on a platform demonstrating just what a dominant force platforms have become in changing the SIPP landscape. I feel that trend will continue.

One of the themes of my talk was the pressure on SIPP operators as a result of the increasing regulatory burden including the new capital requirements.

Overlay the increased operational complexity and consequential costs as a result of the new pension freedoms, the loss of revenue from bank interest reductions and the downward pressure on fees and it’s easy to see why the SIPP consolidator proposition looks attractive to investors.

Levy pressure

One other factor which may also trouble SIPP providers is the potential for a further FSCS levy as a result of the growing number of SIPP claims.

Many advisers have been up in arms at the massively increased levy that they’ve been asked to bear this year as a result of the actions of a small number of “advisers” who frankly have sullied the name of financial advice. I have a lot of sympathy for the vast majority of professional advisers who believe the increase in the levy to be disproportionate and unfair.

I believe the SIPP industry must share some blame – it’s inconceivable that the providers who set up these ill-advised SIPPs didn’t at the very least suspect something was awry.

Take for example the small advisory firm in Wales who set nearly 2,000 SIPPs in the space of 18 months with half of them invested in overseas property and others in precious metals and similar “non-standard” investments. How did they slip through the providers’ systems and controls?

Also what happened to the monitoring by the regulator over that period? I don’t know the details, but it seems to me in that there should be a sharing of responsibility.

Capital idea?

Somewhat bizarrely I believe the consequence of the FCA’s new and ill-conceived capital requirements for SIPP operators is that they will create the problem which the requirements are designed to avoid.

Some SIPP businesses simply won’t be able to meet the new requirements because of the high numbers of non-standard investments that they hold.
Some of these will be well run business and may be attractive to another provider. But some will have such a significant proportion of toxic assets that no-one will want them. What happens then?

It was no surprise to me that in response to the question in my survey: “What one thing would you change?”

[su_note note_color=”#d2d2d2″ radius=”0″]

The top three responses were:
• Stability in all pensions tax regulation
• Clarity over where an operator/provider’s responsibility ends
• Revision of the capital requirements in CP14/12

[/su_note]

One other consequence of the new capital requirements that my survey revealed was that growing numbers of providers are simply not prepared to take on non-standard assets because of the risks involved –and that certainly goes for most platforms.

It seems that the days of the genuine bespoke SIPP are well and truly numbered – while the outlook for the plain vanilla SIPP has never been brighter.

John Moret is principal at MoretoSIPPs

[su_note note_color=”#d2d2d2″ radius=”0″]

Further reading: Sanity check – SIPP operator business risks uncovered

[/su_note]