Self-invested personal pension (SIPP) providers will have to start charging for due diligence because offering it for free is unsustainable, Rowanmoor has warned.
From 1 April, the SIPP provider is introducing a fee for due diligence and ongoing work on complex direct investments.
The one-off upfront fee of £500 and ongoing annual fee of £150 includes checks on the provider of the investment and its directors, obtaining the asset title, and verifying ownership will not give rise to any tax charges on any unacceptable liability or risk.
The Embark Group-owned provider told Professional Adviser that, despite the increase in fees, its due diligence process was not changing. A spokesperson explained it had applied Embark's due diligence process since 2016 when it was acquired, and that this was the first formal fee review since Rowanmoor joined the Embark Group.
The SIPP provider denied introducing the charge as a response to the scrutiny surrounding due diligence on unregulated investments, caused by the likes of the ongoing Berkeley Burke and Carey Pensions cases.
A spokesperson added: "Anyone offering a robust due diligence service should be charging for it. We believe those who do not levy a fee will need to reassess, given the amount of work involved in a proper review. Not charging for this service is unsustainable."
Providers such as Curtis Banks have charged a due diligence fee on non-standard assets for a number of years. According to its schedule of fees document, the provider charges a £500 due diligence/purchase fee, which will still be charged in the event the due diligence fails - clients are not permitted to invest unless the asset has been assessed and approved - and a top-up fee of £250, which is applied when a client wants to put further funds into an existing specialist investment.
'Free of charge, without obligation'
For its part, Dentons Pension Management does not charge any fees for due diligence, with the firm's technical sales director Stephen McPhillips saying the process was "embedded into the culture within Dentons and is part and parcel of its operating structure".
He added: "Dentons has operated a robust due diligence process for screening investments for many years. This can include extensive internal research, consultation with an external due diligence provider and formal review by Dentons' Investment Committee. The Investment Committee is comprised of senior members of staff across the business."
Dentons also said it provided due diligence on any potential investment which had not previously been subject to review, including screening of every proposed property purchase.
"In welcoming a new SIPP or small self-administered scheme client, this work is carried out free of charge and without obligation on the basis that Dentons has obtained enough pre-sale information in order to confidently proceed to establish the new arrangement," McPhillips continued.
"Should the investment be acceptable to Dentons, then the normal charges for making that investment would be levied at the time of investment. If the investment is rejected, no charges are made for the due diligence work."
He added: "The ability to carry out this crucial work free of charge stems from Dentons' scale of operation and specialisation in the bespoke SIPP and SSAS areas. It also stems from Dentons' clear commitment to, and focus on, those areas."
Informed Choice managing director Martin Bamford said it made sense for SIPP providers to charge for any due diligence they needed to carry out in respect of complex or esoteric investments.
"The burden of suitability will always ultimate rest with the adviser, but SIPP providers have a growing role when it comes to client protection," he said. "Some of the worst examples of unsuitable investment advice and pension scams have involved SIPP providers blindly following the instruction of the client.
"Providers should take more care before allowing investors to plunge into dodgy investments, and charging them for carrying out the due diligence is fair. However, the payment of a due diligence fee to a SIPP provider is likely to confer greater responsibility on that provider for the suitability of the investment, should things ultimately go wrong."
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