PensionsMay 13 2016

Concerns over Big Three Sipps’ dominance

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Concerns over Big Three Sipps’ dominance

FinalytiQ has voiced concerns about the state of the self-invested personal pension sector, as the top three providers hold nearly 85 per cent of market share.

In the research firm’s annual Sipp financial stability guide, principal Abraham Okusanya said the dominance of main players James Hay, AJ Bell and Curtis Banks does not rule out the survial of smaller actors.

However, he added the accelerating pace of consolidation in the industry will put “sub-scale” providers - those with less than £500m in assets - under increasing pressure to either join forces with a larger firm or bow out.

In March this year, Mattioli Woods sales and marketing director Murray Smith warned consolidation due to incoming capital adequacy rules could harm the sector and end up being bad for consumers.

In January this year, FTAdviser reported advisers need to be careful when choosing a Sipp provider, because the acquisition risks and challenges are “many and considerable”.

For Mr Okunsanya, it is not just a three horse race between the three largest providers, with some of the medium sized players having strong financial performance and profitability, but at the level below that there are “too many” sub-scale Sipp operators.

He described these as having no particular unique offering and at a risk of struggling to meet regulator’s capital adequacy requirements.

“These providers have got the signs of acquisition written all over them and advisers would do well to pay particular attention to these players in the selection process.”

Financial stability rating for big Sipp providers

AJ Bell

James Hay Partnership

Curtis Banks

Suffolk Life

Hornbuckle (Embark)

Latest year end account available

30-Sep-1531-Dec-1531-Dec-1531-Dec-1431-Dec-15
Sipp AUA at Dec’ 15 (Bil.)£26.10£19.50£9.00£8.71£3.00
Non standard asset (%)4.00%1.00%N/D3.00%N/D
Market share (%) 34.90%26.10%12.00%11.70%4.00%
No. of Sipps88,65152,21439,23626,50012,378
Turnover (Mil.)£57.04£43.82£17.00£17.71£12.60
Pre-tax profit (Mil.)£15.47£9.85£4.08£1.02£0.04
P&L reserve (Mil.)£50.32N/A£6.16£10.43£2.71
People552580273220221
PBT margin (%)27.10%22.50%24.00%5.80%0.30%
Financial stability score8686627648
Financial stability ratingAA

B

B

C

Source: FinalytiQ

The report ranked providers in terms of financial capability, with AJ Bell, James Hay Partnership and Mattioli Woods each being graded A, followed by Curtis Banks, Suffolk Life, Dentons, Xafinity and Talbot & Muir receiving B grades.

Rowanmoor, M W Pension, Momentum, Morgan Lloyd, BW Sipps, Liberty and Hornbuckle all received C grades, followed by Careys, @Sipp and L&C with D grades.

The Association of Member Directed Pension Schemes committee commented: “A number of our members have raised concerns on the report by FinalytiQ, they don’t feel that there is adequate differentiation between the new capital adequacy rules and profitability/service.

“There was also a strong feeling that the report doesn’t compare like for like, as a number of the providers have different capital adequacy requirements, have provided their own data and there are concerns that the report is flawed.”

Stuart Read, pension specialist and independent financial adviser at Devon-based Sabre Financial said: “Our experience is as the larger providers get bigger the standard of service has declined and declined to the point that you end up with a massive operation with no service.

“Going forward I think it will only get worse because the niche providers cannot trade efficiently as small operations.”

ruth.gillbe@ft.com