Choosing a Sipp: What’s good for the client

According to FSA returns, to the end of 2012 there were around 110 Sipp offerings ranging from transactional-based platforms to full and bespoke Sipps. Each has its own features and confidently selecting the right Sipp for a client, who themselves will have their own individual requirements, is an unenviable task.

But with the RDR now in effect, an IFA must provide a very specific service for a very specific fee. That service will include not only the product delivery but also the total service proposition that accompanies it. A Sipp that assists the adviser to deliver that proposition will therefore contribute to its suitability for the client.

The penalty for a poor selection is the need for a replacement, which brings the inconvenience and costs of the establishment of an alternative and transfer of assets, possibly in-specie, at a cost that might need to be borne by the intermediary.

One pleasing thing is that the world has woken up to the idea that a Sipp provider should not be selected on cost alone. Perhaps at a very basic level, where a transactional platform for securities or collectives is all that is required, it has a higher level of importance.

However, in such a situation – which is where many DIY investors operate – ease of use of the online dealing facility, website robustness, breadth of available collectives and support and online information should also be important. But in this sector, IFAs are often thought unnecessary.

What is important for the clients who do require an adviser? While there are many constituent factors, the overriding and simple answer is they want their Sipp to work when it needs to, create as little hassle in their lives as possible and provide reassurance it will not cause them concern.

Bells and whistles

Each client is different; in the same way that one investment will not suit all, nor will one Sipp from one provider fit all. A client will usually be able to set out their immediate and near needs, but a Sipp should be able to offer all the features an individual will require over their lifetime – in the investment accumulation stage, at vesting and in retirement.

This is where detailed analysis of the wider investments accepted – and those not permitted – must be carried out, as well as any terms or conditions imposed. It is also worth considering whether all benefit options are permitted and, where legislation has allowed, how quickly new facilities such as the alternatively secured pension and flexible drawdown were adopted. This might be an indication of how any new opportunities would be handled.

While features may be a matter of fact, service is unmeasurable but should be a core consideration. It requires a potential leap of faith since without prior usage, the quality of service will come only with experience. However, unless direct involvement with client-related investments is required, most client interaction will be with the intermediary and not the Sipp provider.

Simplicity, from a client usage perspective, is also key. Many providers now offer a client-view online-only facility providing basic valuation information and literature requests, and here the key will be simplicity of use, clarity of information and general user-friendly thought in web portal design and presentation.

This concept should extend to all client-ending communications, be they annual statements, valuations or transactional literature, making or switching investments or changing address or death beneficiaries; in fact, at any point where the client might have cause to contact the Sipp provider.

Safe and sound

An increasing concern to be accommodated is the security of your client’s funds. A trust-based Sipp provider holds no client monies and therefore client funds are individually ring-fenced in the event of the provider’s failure.

An insured Sipp, however, includes both the provider and client investment in a single entity. Provider failure here, although covered by the FSCS, might take considerable time to reconcile and place the client back in funds. A trust-based Sipp offers no FSCS protection for the Sipp itself, but would cover any regulated assets individually held within it.

Worth noting is the FSA’s recent consultation on capital adequacy, which if implemented in accordance with the initial proposals will require most Sipp providers to significantly increase their capital base. For those that are able to achieve this new benchmark, any wind-up of the business should occur in an organised way.

However, several providers may struggle, resulting in possible consolidation and sales of Sipp business books in coming years.

A strong financial model and a track record of profitability are therefore required to give your client the greatest reassurance possible.

Fees cannot be ignored; they should be transparent and easy to understand. Providers vary hugely in the pricing models they adopt. An itemised list of costs is clearly straightforward, but in some cases it is more appropriate to charge on a time-cost basis.

Where variable time-related administration is involved, such as property purchase, there is risk of cross-subsidy between simple and complex cases if a flat-rate fee is charged.

For clients who have more detailed needs, it is important to assess the charging model and ensure that they are happy with it and you are satisfied that the customer is being treated fairly.

Best of all

For an adviser, the costs of a Sipp provider are primarily considered in the context of being able to justify them in terms of the features and services offered.

As well as looking at what is best for the client, there is a number of pertinent factors that will be important to the adviser in researching, discussing, recommending, establishing and servicing the Sipp. These processes need to be as streamlined and efficient as possible to enable the case to proceed with the minimum of time and fuss.

An IFA rarely works regular office hours so access to literature, applications, illustrations and case studies mean a new case can be moved forward whenever the adviser is working. On existing cases, a simple-to-use portal detailing basic valuations, transfer and contribution history, benefit details, review dates and latest nominations means reviews and planning can also take place out of hours.

Being confident in a provider’s technical knowledge is crucial for any adviser. Does the provider have dedicated, well-trained, named points of contact to talk through technically challenging issues and processes? Can they work with the IFA to find a solution and educate for future cases?

Something as basic as the client’s application can have a marked impact in the overall experience. It is important that a client’s application is clear and simple to understand and thus submitted correctly first time. Errors and omissions cost delays and lost time and damage the overall service proposition.

It all comes back to service, for the adviser as well as the client. Above most other criteria, getting things done with the minimum of fuss, without the need to chase, means no remedial time necessary by the adviser or their staff. If an error occurs, as they sometimes do, it should be cleared up without question or delay.

The problem with assessment of service is its inability to be measured. Unaudited service standards will offer little comfort, but recommendation, independently accredited benchmarks or adviser-voted awards might be more indicative.

Above all, a provider’s offering should be driven by service because, in conjunction with advisers, this will determine the overall client experience.

Martin Tilley is director of technical services at Dentons Pension Management