Old with the new
The increased stress and competition in the market has also meant that advisers are starting to take their due diligence for their existing Sipp clients as seriously as they do for new. In the independent, bespoke market in particular, recommendations that were made several years ago are now being reviewed and business transferred to a more suitable provider on the basis of new due diligence assessments. There’s no clear pattern on when that happens – it could be a trigger event of continued poor service, a regular review of the client or even a regular review focused on Sipp providers recommended in the past – but it is happening.
One trigger event for such a review is a tightening of a Sipp provider’s investment allowability. The third thematic review divided assets into two categories – standard and non-standard – and was driven by the FCA’s concerns that certain non-standard assets present a significantly higher risk of consumer detriment. Advisers have found that the investments they could make last year with their chosen Sipp provider can no longer be made today, necessitating either a change in investment strategy or a change in Sipp provider.
With business leaking away from the independent providers that now have more restrictions in place, coupled with organic new business sales falling in face of increased competition from platform providers, the financial pressures should be evident. Forced into a niche by the volume of new business being written on platforms, independent Sipp providers have seen their niche squeezed further by having to reduce their investment options. The smaller operators appear to be hit the hardest. When the regulator proposed the new capital regime for Sipp operators they were open in their expectation that a number of providers would exit the market as a result.
That outcome is precisely what’s happened, and has become another consideration for advisers when selecting a Sipp provider. The risk of failure of a Sipp business is one consideration, but equally advisers are becoming increasingly cautious about recommending a provider who may be bought or consolidated in the near future.
The selection process for a Sipp provider is therefore considerably more complex than in the past, and over the next couple of years at least, advisers will want a greater degree of scrutiny, if not for their clients then for their own peace of mind. A part of that process needs to be prepared to not accept at face value the answers provided by a Sipp provider, but to dig deeper and ask further questions on those responses.
