The regulatory pendulum

A large element of that trust can be gained from the staff, history and reputation of the relevant organisation but, it is also helped by having a strong regulatory regime that looks to ensure, among other things, that there are good consumer outcomes and all are treated fairly. Plus, despite all of that, if things go wrong there is a mechanism for recompensing consumers for loss caused through no fault of their own.

New eras

With regard to the world of self-invested personal pensions (Sipps), from their inception in 1990 through to 2007 they operated outside of the various regulatory regimes that existed during that era.

Their inclusion in 2007 into the FSA’s ‘personal pension packaged product’ regulatory regime, which had been in operation for many years, chiefly came about due to the apparent increase in the popularity of Sipps, taking them from being a niche product for the sophisticated and high net-worth client into the retail consumer mass market and thus attracting the closer attention of the regulator.

A big part in the growth of the Sipp – and still relevant today – is that products that were known and recognised as being personal pension schemes designed for retail consumers, were effectively rebranded as Sipps. Without the Sipp being included within the personal pension regulatory regime, regulatory arbitrage could occur and retail consumers could fall outside of the regulator’s protection in an untenable situation.

No longer fitting

However, with the Sipp name now covering products ranging from very simple propositions offering a limited number of fund choices, through to the

fully bespoke traditional Sipp, and the market for Sipps now covering clients who may be contributing say £50 per month through to those with funds of £1m plus, it is perhaps not surprising that the ‘one size fits all’ regulatory approach has been likened to the proverbial fitting of a square peg into a round hole with regard to bespoke Sipps, which are anything but a packaged product.

As stated already, consumer protection is paramount, with the constant battle against pensions liberation fraud as evidence for the need for strong and robust due diligence and governance. There is a danger though that regulations that engender trust for the mass market retail client and which may protect them from themselves, can seriously curtail the scope for other clients who trust in their own experience, knowledge and judgement – or indeed that of their adviser – to make appropriate risk- and reward-based decisions.

The opportunity for such clients to invest in non-standard investments via a Sipp is being squeezed by a number of factors, such as Sipp operators pulling back from allowing such investments due to the impact on their capital adequacy provisions and heightened investment due diligence requirements.

This is along with a growing reticence on the part of financial advisers to be involved in advising clients in relation to non-standard investments, due to the possibility of claims against them being upheld where an investment risk materialises.

Halting the swing

Regulation is ever-evolving and one can only hope that the regulatory pendulum has swung to its furthest point and will evolve to give appropriate freedom – albeit still within a regulatory framework – for individuals to invest their Sipp funds where they wish.

After all, come the new flexi-access drawdown facility in April 2015, there will be an opportunity to withdraw Sipp funds and do just that.

Robert Graves is head of pensions technical services at Rowanmoor Group plc