Mr Tilley said: “Clearly the resources required to undertake the required due diligence are substantial and costs to access these investments may well increase.
“There will be a polarisation of the market into Sipps that can and Sipps that can’t, and IFAs will need to be aware for their clients who may at some point need these investment capabilities for their clients because as has been demonstrated, switching Sipp providers is a time consuming and often costly exercise.
“The review might also be one of the catalysts to consolidation in the market, although depending upon the capital adequacy rules to be issued next month, the potential acquirers will need to take into account the potential liability of acquiring other Sipp firms who have not made the FCA’s required standards previously.”
Andy Leggett, head of Sipp business development at Barnett Waddingham, said that the ‘dear CEO’ letter provokes “mixed feelings”.
He said: “Negative publicity for Sipps – a pension success story – inevitably induces dismay. Although the criticism in this paper is more discriminating than in the second thematic review, which tarred the whole industry, many companies will feel it does not describe their operations yet leaves them questioning whether it is ever worth accepting non-standard investments whatever the amount of due diligence that has been conducted.
“The emphasis on preventing scams and fraud should remind official bodies that this is a joint responsibility across the FCA, the Serious Fraud Office and more, not something to be conveniently off-loaded onto Sipp operators.”
Mr Leggett added that in the run-up to the new capital adequacy rules, “it is interesting that reference has been made to the existing prudential requirements”.
He said: “The rules are extremely complicated so genuine reporting errors are to be expected. We, like others, hold in excess of the required amount which help to protect against this.
“Regulatory arbitrage is different: Advisers should be wary of firms that set themselves up to avoid holding a prudential amount in capital and we can envisage this report as the first step in action being taken against Sipp firms that participate in such tactics.”
Mark Smith, operations director at Mattioli Woods, said that the two main issues are capital adequacy and non-standard assets.
He said: “Firms should have a real focus on due diligence. There has been lots of talk about a permitted investment list but that is not really the point as it does not mean that because an investment is on that list it is appropriate.