Delays in the in specie re-registration of SIPPs could lead to consumer detriment and is an issue the industry needs to address, says Paul Pettitt.
While many areas of the financial advice market are automated and use ecommerce principles and standards to carry out electronic messaging efficiently and securely, there are still some areas yet to embrace electronic processes.
A key area is re-registration of assets - the transferring of customer assets from one organisation to another without the customer having to sell and re-purchase their investment. This is also referred to as an ‘in specie' transfer.
In its RDR policy papers the FSA has stated it is compulsory that companies holding customer assets through nominee arrangements must have efficient re-registration processes and procedures in place by the RDR deadline of 31 December 2012. Under the new rules, the regulator said, such transfers have to be carried out within a reasonable time.
There are clear areas of potential customer detriment where re-registration is either not enabled or is slow and inefficient, including costs and market risk from being out of the market, potential tax liability, and lost investment opportunities.
The Financial Conduct Authority (FCA), which takes over as Regulator in 2013, has already said it will be looking to ensure the way the industry operates is firmly aligned with customers' needs, which is certain to put areas like re-registration under the spotlight.
These rules have clear implications for general platforms but they also affect SIPP operators and the transfers of SIPPs.
Since A-Day, the SIPP market has seen impressive growth - the millionth SIPP is close to being written (John Moret of MoretoSIPPs believes this could realistically occur before the close of 2012).
This boom in the SIPP market has seen an influx of providers offering vastly differing business models, from the simple to the bespoke and including a wide range of assets, from mutual funds to commercial property and more esoteric investments.
This has created a situation where there are numerous and often very disparate systems and processes being used in an inherently complex market. This creates some considerable difficulties in transferring assets.
At the same time, regulatory and commercial pressures are changing the market. Currently, platforms and providers estimate that up to 10% of business is being transferred in or out of SIPPs each year.
However, that figure is set to rise as greater competition and keener pricing begins to see advisers and clients move assets between providers and on and off platforms; as SIPPs make further inroads into the corporate/occupational pensions arena; and as the trend to consolidate personal pensions and SSAS into SIPPs continues.
In consequence, while the majority (80-90%) of pensions transfers today are in cash, principally from legacy products (personal pensions into new SIPPs), it is expected that the more complex re-registration transfers between providers will increase markedly.
Accordingly, Origo commissioned research across 15 different SIPP platforms and providers, published in the White Paper Transfers of SIPPs, which has revealed that the typical transfer process for SIPPs is laborious, time-consuming, inconsistent, costly and lacking in monitoring and service level agreements (SLAs).
Current practices allow for inefficiencies such as manual keying of data from paper forms; double-keying to try to eliminate errors; inconsistent descriptions of funds or nominee names resulting in delays; and varying response times forcing the adviser to chase progress with the transfer.
The impact on the level of service to financial advisers and so the end consumer is tangible and there is a clear need for the industry to take action to deal with this issue if the reputation of the SIPP market is not to be damaged.
Origo has been working collaboratively with the industry to find a practical and timely way to address the technical problems involved.
This includes working with trade bodies such as AMPS (the main trade body overseeing self-invested pensions), conducting workshops and webinars, and developing Origo's Options Transfers service, which has already reduced cash transfer times by 80%, to include full support for in-specie asset transfers.
Importantly, the service delivers the broader set of data needed for the transfer of the full wrapper information required for SIPP transfers.
Paul Pettitt is managing director of Origo
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