How is the SIPP market evolving to meet regulatory requirements? Fiona Murphy goes through the results of this month's Inquiry
At the Association of Member-Directed Pension Schemes' annual meeting in October, Suffolk Life's product and market director Chris Jones buoyed hope for sustained growth in the sector by estimating by 2013 there would be one million SIPPs.
Running alongside such positive news, SIPP providers met uncertainty over a number of issues. There were tough debates over capital adequacy limits and renewed concerns that platforms could displace SIPPs. Meanwhile, the FSA called for a review of providers' due-diligence approaches to UCIS and a further consultation on disclosure requirements.
In light of the scrutiny likely to shine on the sector in 2012, this month's Retirement Planner Inquiry asks where growth in the SIPP market will occur and looks at the challenges providers will face.
As with previous Inquiries, we sent out an online questionnaire to our readers, with 58 advisers taking part. We asked whether these respondents advised on SIPPs. A whopping 83% confirmed they did and the remainder were screened out at this point.
We then wanted to determine the likely prospects for growth in the market. We asked: How do you see demand for SIPPs growing over the coming twelve months? The results showed signs that the massive growth in SIPPs could be beginning to slow. Only 12% of advisers said they expected demand to grow to a great extent in 2012 while 64% said they expected demand to grow to a small extent. Almost a fifth (19%) said they did not expect demand to grow. Meanwhile 4% overall anticipated declining demand.
We tailored our next question to ascertain where any boost in demand was to be expected. We asked: In which sector of the market do you expect to see the most growth? Over two-fifths (43%) said bespoke SIPPs. Next, 28% said insured SIPPs, while a further 28% said execution only or online SIPPs. A tiny 3% said other - this includes models such as wrap SIPPs.
So we wanted to pick our reader's brains and wondered why one product would be the belle of the ball. For bespoke, the consensus was investment choice and flexibility offered for wealthy clients. Another said: "More business owners looking to move commercial property into existing pension provision for equity release."
For insured SIPPs the chief driver of growth appeared to be cost, as one adviser summed up: "cheap and cheerful, with sufficient collective investment funds availability". And for execution only SIPPs; responses ranged from price to a rise in DIY investment - partly fuelled by RDR and mistrust in fund managers.
Then we moved to external factors affecting providers and administrators. What do Retirement Planner readers see as the major challenges affecting the SIPP market?
Perhaps unsurprisingly 60% said FSA scrutiny was a major challenge. In close second, 43% said investment due diligence. A further 23% said falling service standards was in issue that needed to be addressed. Finally, 18% said provider instability - perhaps as a result of the various rumoured takeovers of SIPP providers that went sour in 2011.
Still, a further 18% of answers in the ‘other' category mentioned capital adequacy requirements, RDR, the nature of SIPPs as a personal investment and gilt yields. One adviser said: "The aggregation of pension wrapper with investment management, clouding the original concept of segregation and reverting back towards a ‘personal pension' regime."
With FSA scrutiny and investment due diligence proving hot topics during 2011 we asked advisers to give us their views as to whether due diligence processes need to be improved. Half of participants said they did need to be improved, while 23% said they didn't. Interestingly the remainder of participants remained unsure.
We then went on to ask how such improvements could be brought about. One adviser called for clearer HMRC rules, while another said "the FSA should regulate the underlying investments."
In addition, one reader sought "greater clarity as to whether the investments will be covered by the Financial Services Compensation Scheme." A number put responsibility back on IFAs to be better educated or develop their investment proposition. Others urged for information to be widely available.
This then moved us on to the thorny issue of where responsibility for investment due diligence should lie. Over half (54%) said responsibility lay with advisers while 38% said providers. This is still a divisive issue and one the FSA needs to pin down during 2012.
Finally, we asked do you think the emphasis on UCIS could deter advisers from recommending these investments for SIPP clients. A huge 85% said yes, showing where the hearts and minds of advisers lie on the FSA's stance.
The SIPP market is in flux, particularly with the issues around reforms paired with advice and value for money in a post RDR world. However, despite the vogue for platforms, SIPPs are still the vehicle of choice for many investors and as the at-retirement continues to grow, SIPPs have the potential for continued growth, regulation willing.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till