What do people want from retirement savings products?
For many people this can be summed up in one word, ‘clarity’. They want to be comfortable with what they are getting with a clear understanding of the costs associated.
They increasingly want to find a provider that can tick the right boxes within a budget with which they’re happy, and over the last few years they have started to become more engaged with retirement provision and are looking for providers to offer something different from the archetypal, stuffy Life Office pension plans.
Technology is another area where SIPP providers have an important role to play – linking in with platforms and making use of advances in technology. This has already started to happen, and although not everyone is comfortable with having everything on their iPads just yet, there is a growing trend here.
So based on that, how do they view the world of SIPPs?
SIPPS have this all-singing, all-dancing image, with providers competing to offer the most features, but, as I’ve said, that’s not what people necessarily want at the moment. There’s a increasing focus on risk, and it’s fair to say that SIPPs are sometimes associated with riskier investments.
There have been some recent high profile cases where SIPPs have allowed investments that have failed to perform – and that’s been held against the SIPP, which is not always fair because it’s really down to the underlying investment itself, although it does highlight the importance of due diligence.
As well comfort around investment risk, people want reassurance that their provider is strong and can be relied upon to do the right thing. Even where customers want something that is more tailored to their needs, whether this is in regards to investments, for example, or online functionality, there is often and element of looking to trusted brands to help deliver a future retirement income. Both mainstream and fringe SIPP providers need to be able to demonstrate clearly their credentials here.
How has the SIPP market been developing?
Personal pensions and SIPPs have traditionally been viewed as two separate ends of the spectrum, but over the last few years – partly driven by the emergence of wraps and platforms – we’ve started to see three clear types of SIPPs coming through to meet different needs.
The first is the ‘vanilla’ or ‘no frills’ SIPP which is more akin to a personal pension in that it will be low-cost and have access to a pretty restricted list of investments. In supermarket terms this will be like the Tesco Value range: good quality but basic. The important difference between the more modern version of these products and old style personal pensions is that they are much more transparent – both in terms of charging and investment choice – the new LV= product is a perfect example here!
Then you have the mid-tier - Tesco’s own brand if you like, and bespoke, which is Tesco Finest. This is best defined as the more upmarket proposition that’s not an everyday purchase. LV= has solutions across all 3 segments which can be reassuring for customers or clients whose needs may change.
It’s also worth noting that SIPP providers bring different attributes to the party. Some have very good links to discretionary managers, for example, while some have close ties with platforms, or even their own. The point is that each one will be slightly different.
We’ve recently seen bespoke providers starting to move into that mass market. This means that some of the arguments about SIPPs being different to personal pensions have started to fall away and we are now getting a more unified vision across the industry, based on this segmentation model.
What attributes should advisers be looking for?
The segmentation of the market is useful because advisers no longer have to feel pressured into putting clients into SIPPs that really aren’t appropriate to their needs.
For example, if a client wants a vanilla option and isn’t worried about having access to a wide investment choice then that’s the route they can go down. Similarly, there are options available for those wanting more esoteric investments.
Customers are more used to making choices these days and will naturally gravitate towards the area of the market that suits them. In car terms they will know what will meet their needs. After all, they won’t buy a sports car if they need to transport five kids around!
Fair point! But how do they know what suits them?
This will be driven by their investment goals and attitude to risk. Once they have a clear understanding of these points they can look across SIPP providers and decide which proposition has the most suitable investment engine – and what extras they want to accompany it.
The investments will drive the decision and the choice of wrapper is almost secondary. For too long the SIPP industry has been encouraging people to buy products that can go anywhere and do anything but that might not be the most suitable, or affordable, option for many customers particularly at outset.
You referred to due diligence earlier – can you expand on this?
It’s a cliché, but an accurate one, that it takes years for a company to develop a trusted reputation and a second to destroy it, so no business should be willing to take undue risks that could affect their brand and the good name it has established.
As a company LV= is quite conservative about the business we feel comfortable with and are quite clear about that in our proposition. While other providers may be a bit racier in what they’ll permit in terms of investment links, we are more concerned with protecting our brand and our customers.
Established names are sometimes less willing to do something off-the-wall, whereas for other companies it might be about being different and innovative. At LV= we try to find a sensible blend between innovation that benefits the customer and the next ‘fad’. Advisers and their clients will need to make up their own minds about what type of business proposition they prefer.
Have a look in your crystal ball – how do you see SIPPs developing in the next few years?
I think the market will gravitate towards being more in tune with individual customer needs. Propositions will also become more tech-savvy with functionality on smart phones and iPads, but with continued value placed on delivering high quality personal service where customers demand it.
SIPP providers will be less focussed on whistles and bells and provide greater clarity about their propositions, including their points of difference. For some that could be a challenge - as will being able to demonstrate their financial strength, particularly as far as capital adequacy is concerned, given some of the FSA rhetoric
They will have to show that they have the right processes in place, that their client money handling is rigorous, and that they can stand out in what is a crowded marketplace.
I don’t believe everyone will survive in the wake of changes to capital adequacy requirements, so we should expect to see some consolidation. Growth at the top end has stalled – bespoke SIPPs are not growing at the rate they used to, so this is inevitable.
A lot of the wraps and platforms are now offering SIPPs but I believe that in the advice driven market advisers will continue to find value in providers that can help them navigate the ever-changing world of pension regulation and identify opportunities to ensure their clients receive good advice.
Have you got a final message for readers?
Be careful how you view SIPPs! In an ideal world I’d ban the word ‘SIPP’. It’s simply a tax-efficient savings vehicle, in much the same way as an ISA. Advisers mustn’t get too hung up on the name, and should spend more time looking at what their customers need and finding the most suitable proposition, including appropriate price comparisons and provider due diligence.
Advisers are starting to be more conscious of the need to segment their client bank, after which it comes down to carrying out due diligence on providers and understanding what’s most important for customers. For example, is it having a trusted brand or the service levels on offer, or purely down to cost?
It’s important for advisers to have a range of providers across different segments on their radars that they can slot into various customer demographics. They also need to be aware of potential future changes and ensure they’re not locking clients into something that won’t be appropriate in five or ten years’ time.
Ray has spent over 20 years in the financial services industry, in a variety of marketing, product development and strategy roles. In his current role at LV=, Ray is responsible for the development of the pensions proposition – which primarily focuses on the at and post retirement market
Ray is a regular media commentator on the SIPP market with much of the comment focussing on the ‘customer view’ of the industry and product propositions.
