Advisers are in a difficult position when it comes to assessing and comparing costs as there is such a variety of models on the market.
According to Gregory Kingston, head of marketing and proposition of Suffolk Life, the starting point for analysing charges must always be to identify exactly what you are recommending to the client: what investments are you recommending and is the client in drawdown, etc?
Once the course of action can be charted, Mr Kingston says you can start making comparisons from there. Advisers need to also check for charges that can apply in the future, Mr Kingston adds.
He says: “There has been a worrying recent trend by some Sipp providers to hike their exit fees for existing investors.”
Any Sipp that charges based on the value of investor’s fund will mostly favour investors with smaller fund sizes, says Mr Kingston. Sipps with a flat fee structure favour those with larger funds.
The difficulty for advisers is where the two types of funds start to overlap and Mr Kingston says that is where other differentiators gain even more influence.
He says: “Cost is important – any adviser will always want to minimise the cost for their client – but there are other equally important factors.
“I’ve recently seen feedback from advisers in the press where they are having to spend hours and hours resolving problems with some Sipp providers.
“That is dead time to them – unproductive, not chargeable to the client and not reclaimable back from the Sipp provider.
“Aspects such as reputation, level of service, financial stability and complaints history should all be taken into account and often adviser due diligence will pick these up.
“In fact, some would argue that these points should be right at the front of any adviser’s research, ahead of cost.”
Advisers should seek to obtain the product best suited to meet the needs of their clients following their fact find, says Robert Graves, head of pensions technical services at Rowanmoor Group.
Assuming that the adviser is giving whole of market advice, Mr Graves says the Sipp product most suited to the clients needs would probably be dictated by their attitude to risk, the functionality required to provide the options identified for payment of benefits, and other criteria.
A client with minimal risk profile, who wishes only to invest in standard investment types would probably look towards a low-cost, low-feature Sipp. Clients who wish to invest in the higher risk non-regulated type assets would consider a more costly bespoke Sipp provider, Mr Graves adds.
He says: “The adviser cannot separate the decision to establish a Sipp from the underlying investment strategy for any client, as mandated in the (then) FSA in their alert of January 2013.
“Although Sipp charges are clearly an important factor for the client, it is essential that they do not drive the sale of a particular product.
“The facilities offered by products vary and service standards are an important factor; an adviser should pick the one most suited to the client’s needs.”
Claire Trott, head of technical support at Talbot & Muir, agrees it is best to only compare charges once the type of Sipp that the client needs has been established.
She says: “The variation in charges and types of Sipps means the cheapest Sipp may not offer the services that the client will need in the future and hence, making that comparison a waste of time.
“It is best to start with features of the product and service of the provider to narrow down the search before looking at the fees that are chargeable. This will mean a fairer comparison as the charges applicable will generally be set out in a similar way.
“Charges are important but they are not the most important aspect when choosing a Sipp provider.
“Will a really cheap provider still be around in years to come offering up to date services? Pensions are a long term investment so choosing a provider because you can work with them for the long term is significantly more important that cutting costs by £10 or £20 a year.
“That said just because the charges are high, doesn’t mean you will get better service, so there is a balancing act to be done. There is definitely more choosing a provider than the charges.”
Companies such as Adviser Asset, the Platforum and Lang Cat provide comparison tools and tables that advisers can use, says Neil MacGillivray, head of technical support unit of James Hay.
Mr MacGillivray says: “Price will naturally play a part in the adviser’s recommendation but it should come down to recommending the product that is right for the client’s individual needs now and in the future.”
