Sipp providers face fresh challenges from all angles now new sipp regulations have come into force, argues a Defaqto report.
The study, entitled Sipps in the UK – Let battle commence, suggests the extra pressures on providers of the self-invested products could force some of them out of the market.
It also concludes the dominant position of specialist sipp administrator and trustee companies is being challenged, both by insurance companies, stockbrokers and investment managers.
New regulation of personal pensions – for the first time including sipps - came into force on April 6.
It means operating the sipp wrapper becomes a FSA-regulated activity, so the scheme administrator becomes the provider, rather than the previous arrangement where a provider was required as well as an administrator.
All sipp providers are required to apply to the FSA for authorisation to carry out the new activity of establishing, operating and winding up a personal pension.
Matt Ward, group head of pensions and wealth management at Defaqto and author of the report, says small niche providers are going to have to get tough.
“The rest of this year will be a turbulent time for all involved in the sipp market,” he says.
“It will be a period of intense consolidation as many players will be seeking to avoid being bullied out of the market or swallowed up by competitors.
“Securing robust distribution channels and strategic alliances, including interaction with fund supermarkets and wraps, will be the key to survival.”
Defaqto argues a major threat to the current pension regime is the growing trend for advisers to move to a holistic planning approach for using risk profiling, asset allocation, and fund selection rather than product-based solutions.
The report concludes: “Platforms and wraps, with their inbuilt pension tax wrapper, cater for this market to the detriment of the traditional providers.”
It alleges astute niche sipp providers, conscious they cannot compete with these propositions, are seeking placement onto the product panels of those wrap propositions which aim to give advisers and their clients more product choice.
While sipps with more sophisticated investment options will continue to form a very niche market for investment specialists, the main battleground for business will be around collective investments, the report predicts.
However, the firm concludes Sipps are only the fourth most popular pension products sold in the market today, lagging behind personal pensions, individual stakeholder and annuity pensions.
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