Defaqto mulls SIPPs ratings change
Research company Defaqto is considering changes to its star ratings system for SIPPs that would see the market split into simplified and premium sub categories, Money Management has learned.
Defaqto fund analyst Fraser Donaldson said that the issue was a "live debate" that would continue throughout the year, with any changes likely to come in time for the 2012 ratings announcement in February next year.
The discussions are a response to criticisms from many providers at the upper end of the market that claim simpler SIPPs distort consumer knowledge of the product.
Specifically, several providers have argued that giving inexpensive simple products five star ratings reflects badly on their own products, which typically cost more but offer greater flexibility over investment and divestment options.
Richard Mattison, business development director at James Hay Partnership, said that the ratings system is flawed because "a lot of it is about cost", which makes it difficult for consumers to determine what a five star rating actually means.
Mary Stewart, marketing director at Hornbuckle Mitchell, said that the ratings system had become a box ticking exercise that failed to reflect the reality of each product's offering.
"Some firms say they offer particular investment options but then they say no to 90% of transactions," Stewart said.
Donaldson defended Defaqto's approach, saying that there were 32 different criteria of which only seven relate loosely to fees.
Many of the criteria are also rated on a stepped basis that scores each product on a scale between one and five depending on the amount of flexibility they offer in each case.
He added that Defaqto's system, which is reviewed each year following consultation roundtables with the industry, would "progress and evolve with the market".
However, he said that the debate over splitting the market was particularly "tricky", as whatever decision was reached it would "inevitably be something that that half of the market would disagree with".