FTAdviser.com

Advertising

Sipps have historically been seen as a high-end product. They offer sophisticated investors the opportunity of including a wide array of assets in their personal pension pot and, as a result, have been attracting a great deal of interest.

With Sipps becoming more popular they have come under greater scrutiny, not only from the FSA, which is conducting a review of providers that is due to be released in the coming months, but also from the Department of Work & Pensions.

It became clear to the DWP some time ago that there were certain inconsistencies present within the Sipps framework and it has worked through a series of consultations, the result of which has been a change in the rules on self-investing protected rights.

Up until the beginning of the month only insurance-based Sipps providers had the ability to invest protected rights, while trustee-based Sipps were denied that right. The difference between the two has now been blurred, although the protected rights money still has to be accounted for separately.

A further, more radical overhaul from the DWP is scheduled for 2012, with the current raft of changes simply a precursor to a true levelling of the playing field.

The main concern expressed by the regulator, the government, as well as from Sipps providers themselves, is a lack of transparency. Too often the end customer is being charged for having the capacity to invest a much wider range of assets than they will ever actually use.

There is also the danger that customers are being transferred into Sipps by over-eager advisers who haven’t properly considered their needs. There is a further concern that advisers are being swayed by the potential commission that could be paid out if such a transfer were made. Certainly the FSA has made it clear that the industry is under scrutiny and advisers are being encouraged to inspect their scruples when considering transferring a client into a self-investing option.

Laura Mossman is features editor at Investment Adviser