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Guide to Sipps
Your IndustryAug 27 2015

Impact of rule changes on Sipp market

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Broadly the impact of the changes will be to increase the capital requirement for Sipp operators.

In August last year, the Financial Conduct Authority, published its final long-awaited capital adequacy rules, which are set to come in from September next year. In its original proposals the FCA warned that as many as one in five firms may exit the sector, however last year the FCA cut its prediction to one in ten firms.

However, Chris Marshall, senior technical specialist at Hornbuckle, says there is no evidence that the impact has been as widespread as feared, probably helped by the changes made to the initial proposals and the fact that the changes were announced in good time before they will come into effect.

Because of the additional capital cost of holding non-standard assets, and the increasing due diligence requirements connected with them, Mr Marshall says many operators have instead opted to limit considerably the scope of investments they will permit.

Matthew Rankine, director of sales and marketing at Liberty Sipp, says the capital adequacy requirements will see the Sipp industry split into two categories.

He says the Sipp industry will become about those that allow non-standard assets and those that don’t.

Mr Rankine says the ones that do allow non-standard assets will have to charge higher fees in order to pay for substantial due diligence and the increase in capital reserves.

Charlene Edwards, technical services consultant at AJ Bell, says this division of the industry is already taking place with many providers already imposing restrictions on the types of assets they allow, for example restricting purchases to standard assets only.

Investors looking to hold non-standard assets are very likely to see an increase in the charges they pay, and they may see a reduction in the number of providers willing to allow the purchase of these non-standard assets, she notes.

Ultimately though our experts agree the regulatory changes will bring about a higher quality, safer, more resilient Sipp market for both advisers and investors.

According to Paul Evans, pensions technical manager of Suffolk Life, Sipp operators have a proven track record in responding to change and have continued to deliver drawdown in all its forms since it was first introduced.

However, he says it is inevitable that some providers will decide that their business is not viable and look to exit the market so advisers should look closely at Sipp administrators to assess which will be able to offer the necessary level of service and security for their clients.

Also advisers should not think this will be the final changes to the Sipp industry. These most recent changes are unlikely to be the last, he adds.