John Moret discusses the SIPP market post regulation and asks whether greater flexibility is necessarily beneficial
How do you see the SIPP market developing post regulation?
It is still early days but there are clear signs from trade surveys and other reports that the growth in SIPP business is accelerating. It would seem that much of the growth is being fuelled by life companies who are replacing their traditional personal and other individual pension products with SIPPs.
There is a reasonable debate to be had around just what constitutes a SIPP as while legally a plan may allow wider investment it is clear that in some cases a life company SIPP is nothing more than a personal pension dressed up as a SIPP. Some companies quote figures as high as 90% of assets being invested in their own funds for example. The FSA approach to regulation in treating SIPPs just like any other personal pension as a "packaged product" has probably helped cultivate this approach and may also indirectly have helped fuel the concerns around "suitability". Had a different approach been taken to SIPP regulation recognising the flexibility around investments that is one of the key attractions of a SIPP and the fact that most of these investments will already be regulated then we may have seen a slightly different growth pattern for SIPPs evolve.
As things stand I expect to see even greater growth in the middle ground of SIPPs with some of the wrap and supermarket platforms competing with life companies and SIPP operators for this business. At the bespoke end the issues are different with too many smaller players for the current market to be sustainable. We are already seeing the first signs of consolidation and I believe we will see more activity in this area as the real costs of operating a regulated SIPP business start to bite. Providers with just a few hundred SIPPs will largely disappear over the next few years. Some may regret this but it is the inevitable consequence of the new regulatory framework.
It remains unclear just what impact the retail distribution review will have on the development of the SIPP market. Given the high proportion of SIPP business that is written via advisers any developments that confirm the status of the professional adviser and financial planning should be good news but it is still early days.
While SIPPs have no doubt sparked people's interest - how much do you think people really understand them?
There is little doubt that there is much greater awareness of SIPPs than previously. Some recent figures that I have seen suggest that around 40% of the "target" consumer market have actually heard of SIPPs but only one in five of these actually have a SIPP. How many of these actually understand their SIPP is difficult to gauge.
Much will depend on whether they used an adviser and what the motivation was for setting up a SIPP. If it was driven by a desire to consolidate previous pension entitlements the investor may well benefit from a greater understanding of their "accumulated pensions wealth and possibly the importance of adopting the right investment strategy. However I suspect many SIPP investors remain largely in the dark - particularly those using a "deferred" SIPP. Clearly where the SIPP is being used for a specific purpose e.g. commercial property the level of understanding is likely to be much greater.
How do you see the e-SIPP market developing?
Assuming we are talking about a "no advice" online SIPP proposition the growth rates in this segment look likely to continue for a while. Just how big the ultimate market for this type of proposition will be is unclear but if recent developments around worksite marketing prove successful then the numbers could increase significantly. The average fund under this type of arrangement is much smaller - typically around £40k - suggesting that in many instances this does not represent the investor's total pension wealth but is much more of a "SIPP on the side". As such there is good reason to be optimistic about growth in this segment.
In our recent SIPP Inquiry, 42.11% of advisers said they thought they did not receive adequate training from providers and distributors - what is your opinion?
I think this very much depends on the nature of the adviser - and also whether the SIPP providers see this type of activity as part of their value proposition. Historically it has been the life companies that have delivered this type of training. Most smaller SIPP operators would not have the resources to undertake this work on a wide scale. The growing use of websites and web portals means that advisers are much more self sufficient than in the past and there is already plenty of generic material available to advisers in this way - in addition to all the written material available through the trade press and similar publications.
There is currently no definitive list of allowable investments in a SIPP, though advisers face punitive tax charges if they do not invest appropriately. What safeguards do you think advisers need to have in place to ensure this doesn't happen?
I am not clear what tax charges apply to advisers if a SIPP investment falls into the category of "taxable property". The tax charges are imposed on the investor through his SIPP and possibly also the SIPP administrator/operator.
SIPP operators can in theory accept any investment although most will refuse to accept the more esoteric type of investments where tax charges are likely to arise and may also preclude other investments e.g. unquoted investments, derivatives etc. Advisers need to look closely at the approach that their preferred SIPP operator adopts in this area.
However it should not necessarily be assumed that greater flexibility is in itself beneficial as the more fringe types of investment are usually the most problematic and potentially resource intensive and some operators prefer to adopt a slightly more cautious approach in the interests of ensuring that quality of service is not impaired.
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