A number of self-invested pensions firms have told FTAdviser that the looming changes to capital adequacy across the sector are like to hit bespoke providers hardest, with fees likely to rise and flexibility curtailed to protect margins.
New rules are expected next week, which will confirm higher capital reserves requirements and higher sums to be held against non-standard assets.
Speaking to FTAdviser, Murray Smith, director of Mattioli Woods, warned the costs are likely to increase in the short-term due to the expected “significant” increased capital requirements, and that this will inevitably be passed on to consumers.
He said: “So for Sipp providers operating on low margins, costs may need to be passed on, or alternatively providers may need to restrict the flexibility of their Sipp offering to reduce capital requirements.
“This does call into question what really is a Sipp and what is a more basic product. There is a bit of ‘apples and pears’ in the market place at the moment which can be confusing for consumers.
“However, looking further ahead technology and development around platform and operations has the potential to reduce costs.”
Greg Kingston, head of marketing at Suffolk Life, agreed that the cost of running bespoke Sipps are set to rise for some providers.
He said: “The regulator is likely to set higher standards of controls for Sipp providers as a key finding from the third thematic review, and operators who do not already have those controls in place will incur greater costs with likely no option other than to increase fees.
“Sipp operators who have already invested in greater controls and monitoring of investments, automating as many processes as possible, will be better placed.”
Last week, the Financial Conduct Authority revealed that its third thematic review found a “significant number” of Sipp operators were still failing to manage these risks and ensure consumers are protected appropriately, despite its recent guidance.
Martin Tilley, director of technical services at Dentons, agreed that the new capital requirements, the third Sipp thematic review, and even the new pension reforms, could require firms to review fees.
Mr Tilley said: “Sipp providers who derive an income from drawdown reviews and payroll fees may see these reduce with the flexibility of uncapped drawdown to be introduced in 2015. Those with clients with smaller funds are more likely to see these clients extinguish their pension pots more quickly than they were expecting them to have done, meaning a lost revenue source earlier.
“Building in the cost of the guidance guarantee might be an additional burden. There is no doubt that the majority of Sipp providers have already reassessed their business strategy and business plans. They will need to do so further after the FCA announcements.
“However, whilst technology can help with administration and management information, where bespoke Sipps are concerned and where service is paramount there is no alternative than to employ the required numbers of experienced staff.”
