Dentons’ director of technical services said a “perfect storm” of increased capital adequacy rules for Sipp providers, a crackdown by the FCA and HM Revenue & Customs on eligible assets, and the demand for ever lower fees had left many providers unable to deliver a satisfactory service to advisers.
He said: “The bubble has burst on low Sipp fees, as the service is failing IFAs. Client service is only as strong as the weakest link in the chain, and increasingly that has become the Sipp provider.
“Advisers are acutely aware of how that failure affects how their clients see them.”
Mr Tilley said many Sipp providers had been forced to beef up staffing levels and compliance to address due diligence failures highlighted by the FCA.
“Ultimately that pushes up costs, which in turn will push up capital adequacy needs for providers.”
He added: “We may see a reverse in the trend of Sipp fees going down as a result – IFAs are now fully taking this on board and are prepared to pay higher fees to get the service right.”
In October the FCA confirmed a third thematic review into Sipps, this time focusing on Sipp operator financial resources, the quality of business Sipp operators allow within their schemes and “operational procedures and controls”.
The results of both this review and FCA proposals finalising Sipp provider capital adequacy rules, likely to demand providers hold a minimum of £20,000 in reserve compared with just £5,000 currently, are due to be published later this year.
Graeme Mitchell, managing director of Galashiels-based Lowland Financial, said: “I suspect there is a significant storm for all Sipp providers, with greater regulation of Sipp administration, fear of falling foul of capital adequacy rules, and concerns about unregulated business.”
Simon Welch, IFA for Newark-based Sense Financial Solutions, added: “This is not about the money, it is the principle. We all make errors but it is how you deal with errors that defines you. I fully intend to transfer all business away from providers that cannot offer good service – they are cheap for a reason.”