Robert Graves discusses the financial planning benefits of using SSAS
The Retail Distribution Review is having a huge impact on the adviser market with the move from commission to fees. But could the move to a fee-based model be opening up new opportunities for the provision of financial advice, using a small self-administered scheme (SSAS)?
While the SSAS has been around since the 1970s it is true to say it has been somewhat eclipsed by the self-invested personal pension (SIPP). Looking at the SIPP market gives some indicators for the SSAS market.
Although all types of SIPPs have seen growth in numbers the most significant growth has been at the commodity or ‘simple SIPP’ end of the market.
The driver for operators of these SIPPs is essentially about building funds under management, from which annual management fees can be taken and that they link neatly into wrap and investment platforms.
Some advisory firms have business models aligned to building funds under management but with increased talk of greater ‘direct to consumer’ investment services, advisers need to be able to demonstrate their added value in remaining as an intermediary in building individuals’ funds under management.
Relating this back to the SSAS, it is a product that has never lent itself to support business models predicated on remuneration based on funds under management. One of the key reasons is that two of the most popular investments for SSASs are commercial property and loanbacks, neither of which adds to funds under management from which charges and adviser remuneration can be taken.
A restricted market
SSASs will always have a more restricted market than SIPPs as they are primarily designed for directors of small companies, but there is still a big market. According to the Department of Business Innovation and Skills, at the start of 2012 there were 1.3 million private sector companies and of all private sector businesses, 99.2% are defined as small business, having 0 to 49 employees.
Apart from a sizeable market what are the attractions of SSASs for advisers in the post-RDR world?
• Traditional SSASs have always operated on an ‘unbundled’ charging basis with explicit fees for the administration services, investment management fees and financial advice fees if applicable and so in this respect are already RDR compliant.
• Directors are likely to be used to paying fees for professional services such as for accountancy and legal services and will therefore be more attuned to paying for financial advice.
• With general financial advice being a VATable service if the advice is being paid for by a VAT registered business, rather than by an individual, the additional VAT charge is negated.
• A SSAS is as much about corporate tax planning as it is about individual retirement provision, so gives huge potential for an adviser to add value in resolving often conflicting pressures of financing the business and financing retirement.
• Legitimate use of SSAS features such as pooled commercial property investment, loanbacks to the employer and scheme pension reduces the likelihood of losing the client to alternative advice propositions.
• Small companies may be a family-run business, giving rise to the opportunity for building a long-term relationship with the clients through the generations and providing succession planning.
• While directors’ pay can vary considerably, the expectation is that directors will tend to be wealthier and therefore advising on the SSAS could create opportunities to provide fee paying advice on savings, investment and protection needs for the directors and their families.
• Involvement with small business through SSAS could pave the way for more advice opportunities such as auto-enrolment when the staging dates for small firms draw closer.
Finally, the SSAS belongs to the company, not the SSAS provider, and gives the directors significant control over their pension arrangements, unlike a SIPP that is controlled by the SIPP operator. Directors of small companies are bound up with having full control of their business affairs and therefore SSASs can often strike a chord in this respect.
With that added flexibility and control comes the need for advice in exercising it, particularly in respect of ever changing pensions legislation. This is where advisers working in the SSAS market need to consider using a SSAS administration company that has a proven service proposition, experience, and technical knowledge to support them.
Robert Graves is head of pensions technical services at Rowanmoor Group
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