As the SIPP market continues to grow Colin Christie highlights the main challenges going forward
Given the huge growth in SIPP sales post A-Day what are your future growth expectations for the market?
The market continues to be fuelled by increasing client demand for the greater control and flexibility provided by SSASs and SIPPs. In addition, the vast majority of funds within UK pensions are held in defined benefit or final salary schemes. Recent industry estimates put the figure as high as £1.5 trillion.
However, a recent survey by the Association of Consulting Actuaries revealed 81% of defined benefit schemes are now closed to new members, and the number of schemes closed to the accrual of future service entitlement has increased to 14% (up from 10% two years ago). Also, many are in deficit. However, deficits are being reduced which will create the impetus for increasing numbers of employers to wind-up their defined benefit schemes. This would give rise to an enormous flow of pension funds from such schemes to alternative individual plans and the SIPP market will be a prime beneficiary.
Poor transfer times have been highlighted as a real issue for SIPP providers. How do you feel this issue is being addressed?
The advent of sophisticated transfer analysis tools should speed up the initial transfer process. These tools are designed to assist the adviser in making a rapid assessment if a transfer is viable and will provide a detailed compliant report. At DSTi we are seeing a continued demand for this product.
What lessons have you learned from the SIPP regulation process?
As a software provider to the regulated market, DSTi has seen an increase in the number of SIPP providers coming to us for their SIPP illustration software. We currently have 25 SIPP providers who have seen many changes over the past year or so and have risen to the challenge absorbing regulatory changes while continuing to drive their business. Interestingly, it is not only regulation that has caused SIPP providers to produce illustrations but IFA compliance departments require illustrations to support the advice process.
How much demand do you think there is for the use of protected rights in a SIPP?
As SIPPs become more mainstream we see a high demand for SIPPs to accept protected rights. Most individuals have accumulated protected rights at some point or other during their working lives and if a SIPP is the appropriate pension vehicle for them it is difficult to justify why they cannot be brought into the SIPP providing appropriate safeguards are in place.
Will regulation stunt innovation in this market?
The new relaxed contribution limits combined with the ability to concurrently contribute to more than one pension scheme, and all this at the same time as increased demand for consolidation. SIPPs could be the perfect vehicle for consolidating pension arrangements and getting maximum flexibility around drawing benefits and investment choice. The differentiators in the new SIPP market will focus on service quality, transparency, product features and web functionality. Innovation around these differentiators and how they can be delivered will therefore be essential for providers in creating successful and attractive SIPP propositions.
What safeguards do advisers need to put in place to ensure that SIPPs are only sold to those who need them?
The key considerations are not whether the pension vehicle is branded a SIPP but firstly, whether a pension is a suitable product. It is important that advisers make this aspect clear to their clients and that a documented and compliant advice process is followed.
Good retirement planning tools can help advisers follow a compliant process and ensure that the advice they are giving to their clients is tailored to their circumstances and investment objectives.
Given the huge growth in the deferred SIPP market how will the role of the niche provider evolve over time?
Consolidation of SIPP providers and their offerings are likely to increase. Independent financial advisers (IFAs) should look to established names with proven systems, processes and financial strength to cope with the anticipated growth. However, much of the new regulations should already be best practice in the SIPP industry, and as such most quality providers will not need to overhaul their existing business models and systems.
As in all markets there will always be room for providers who can offer a more tailored and personalised service. We see that niche providers are uniquely placed to capitalise on this demand, particularly where their clients are investing in more esoteric investments where the large providers cannot leverage much advantage from economies of scale.
How will the Retail Distribution Review affect the SIPP market?
The proposal to shift away from provider led remuneration towards customer agreed remuneration should benefit the SIPP market. The perceived provider bias in the current commission model breeds mistrust. Transparency in this area fits well with the ethos of the SIPP.
It remains to be seen what form the final requirements regarding professionalism and qualifications will take but one thing is clear, the emphasis will be on higher standards and it is likely that IFAs who want to advise in the SIPP market will have to seek further qualification in order to do so.
What challenges do advisers face in the current SIPP market and how can they deal with them?
The main issues facing advisers in this market are change and competition. With the number of players capitalising on the high demand for new and innovative product offerings coming to market, advisers need to work hard to keep up with the latest products and legislation. Giving clear, transparent and compliant advice backed up with rigorous but efficient processes will be the key to success but, above all, adding value will be paramount.
ABOUT THE AUTHOR
Colin Christie is business development manager, DSTi PAS
Colin has been in the financial services industry for 30 years as an adviser and senior manager. His experience as an end-user of technology gives him a thorough understanding of the needs of financial services companies and their advisers, enabling him to recommend and deliver effective solutions.
DSTi PAS provides highly sophisticated pension analytical, planning and review solutions with all the functional capability an adviser requires in today's pensions environment. The tools are web based, giving access to advisers and clients as well as in-house consultants and administrators. The system includes trading capability across the full range of investment instruments and is complemented by DSTi's PAS Planner, enabling professionals to provide informed and compliant planning advice.
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