Regulation, regulation, regulation

This article is part of
Self-invested Personal Pensions - April 2014

Greater transparency

The pace and volume of change has undoubtedly hit service levels. However, it has also helped to raise awareness with advisers (and compliance officers) of some of the key issues facing Sipp providers. There is now greater understanding that it is not sufficient to recommend a Sipp provider on product features alone. Advisers are increasingly asking more detailed and searching questions on what may prove to be topics uncomfortable for some Sipp operators: how much capital do you hold, what is your complaints history, who owns you, what is the background and experience of senior management?

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Advisers that do not ask these questions may need to answer some uncomfortable questions themselves in the future, as the latest data from the Financial Ombudsman Service (Fos) shows. The number of complaints about Sipps is on the rise.

Chart 1 features data obtained from Fos via a Freedom of Information request. It shows that Fos resolved a total of 625 Sipp-related complaints in 2013, with 267 coming between October and December alone.

Of those complaints, nearly a quarter relate to administrative failures. Approaching three quarters of all complaints relate to advice or the sales process, with misrepresentation and attitude to risk inconsistencies the key areas of concern. Advisers will not be surprised to learn of the latter: issues related to attitude to risk are frequently cited as causes of complaints. In this sample many are, of course, likely to relate to the investments recommended within the Sipp rather than the Sipp itself. Chart 2 shows the percentage of resolved Sipp complaints.

Whether or not a tougher regulatory environment will improve Sipp complaint numbers is open to debate. Three thematic reviews of Sipp operators in less than a decade suggest that the regulator still feels parts of the Sipp market pose unacceptable risks of consumer detriment. Complaints tend to be triggered by events, such as unexpected news or poor investment returns.

The outcome of enforcing stricter regulation may just be one of those events, actually resulting in an increased number of complaints in the short term. That should not necessarily be seen as a poor outcome - a successfully resolved complaint puts the investor back into the position where they expected to be.

The real benefit of tougher yet appropriate regulation for Sipps is that the Sipp operators who invest to improve and survive the change will emerge stronger and more capable of meeting the expectations of both consumers and advisers. Of course, there’s always the risk that the regulator will go too far, risking a stifling of innovation and reduced choice for consumers.