Don't be taken for a ride when looking for the right SIPP provider. Stewart Dick goes through the issues advisers need to think about.
The popularity of the self-invested personal pension shows no signs of waning, as more and more investors seek to take control of their pension funds.
But while choosing to set up a SIPP might seem appealing, the prospect of choosing the right provider can be a daunting one. In theory, an abundance of choice is a good thing, in reality it involves a great deal of research.
The two most important factors that you should take into account when choosing a provider are absolute transparency and a clear commitment to the SIPP market.
A good SIPP provider should be able to demonstrate transparency at every point in its business, ranging from its fee structure to its capital adequacy.
You are well within your rights to ask how much cash the provider has, how much new business is coming in and how much profit is being made.
Questions to ask
It is also vital to know the capital of the business, especially in light of the upcoming solvency requirement changes. If capital is looking thin on the ground, it could well becoming a sitting duck for a takeover when the FSA's new requirements are implemented in 2013, amid growing concerns that some of the smaller players will be unable to fulfil the condition, leaving them out in the cold.
If a provider is unwilling to open their books to you, it may be that they are nursing greater losses than gains and should set off the warning bells about the long-term ability to commit to the SIPP market.
Understandably, clients like to have a clear idea of the charges involved and how these will pan out over the lifetime of an investment. Often, what seems like an attractive deal at first can belie the hidden costs so it's important to check that there are no nasty surprises contained in the small print, including additional set-up charges should an investor opt to transfer their single investment to a full SIPP.
While offering low cost services is easy, delivering a high standard of service can prove otherwise. You are justified in asking for a vigorous complaints procedure and likewise, can expect a service whereby customers are given the opportunity to give feedback. Better still, a provider that clearly demonstrates that responses feed through into improvements.
It may sound like common sense, but when looking for a SIPP provider it helps to seek out those that not only demonstrate growth within the chosen division, but have SIPPs at the very heart of its business. By doing so, it limits the risk that the provider will decide to divert capital and management resources from the SIPP business to other areas further down the line.
Therefore I would urge you to check for a strong track record. Some large providers may be of impressive scale but this does not always mean they are not losing business at a faster pace than they are gaining and if this is the case, there is often a very good reason why. A strong track record showing positive growth trajectory should therefore not be undervalued.
Often a highly advanced technology system and strong research department are testament to a provider's commitment to the SIPP market. While seemingly overlooked, state of the art technology can save both you and the client time and money by helping to avoid administrative issues.
Similarly, a well-resourced research department should not be underestimated. While choosing the right investments for clients ultimately lies with the IFA, it doesn't hurt to have help from a knowledgeable partner who can talk you through the different investments. Indeed, finding a provider that offers a personal face-to-face support service is a great boon.
The power of a knowledgeable and experienced consultant, who is able to talk through the various scenarios with both you, and your client if necessary, is a valuable tool.
Ultimately, the birth of the SIPP was to allow pension savers greater flexibility with their investments, although there are still providers in existence who place unnecessary limits on the investments available.
Thus, it is worth making sure that when choosing a provider, you plump for one with a full and comprehensive range that gives clients the best possible choice for their retirement.
Stewart Dick is head of sales at Hornbuckle Mitchell
£300bn of liabilities
View from the front row
Transfer from occupational scheme
Appointed by FCA and PSR boards