The regulator does not control the level of pricing, but the Financial Conduct Authority is charged with ensuring that charges are transparent and easy to understand.
In the early days of Sipp regulation back in 2007, Neil MacGillivray, head of technical support unit of James Hay, says it seemed the FSA’s view was this product was a specialist pension vehicle associated with complex charging structures.
However, as Sipps have become a more mainstream product and the number of players in the market has grown, Mr MacGillivray says competition has seen the charges in this area reduce over the last few years.
Also he says the variety of Sipps now range from simple Sipps that are almost akin to the traditional personal pension schemes, right through to the full-functionality Sipps allowing the full range of HMRC permissible investments and commercial property, with associated charging structures depending on the level of functionality offered.
So, of late, Mr MacGillivray says the FCA’s focus has been less on the level of charges, but more on the clarity and accuracy of disclosure of them to the client.
The regulator will not be happy with advice that leads to unnecessary charges for clients, such as paying for services that they will never use, says Claire Trott, head of technical support at Talbot & Muir.
She says: “Advisers should be clear what is included in the annual fee and ensure that they make it clear what additional charges the client is likely to face over the term of the policy and not just at outset.”
The pertinent rules in the FCA’s Conduct of Business handbook are 6.1.9R to 6.1.14R, which state a firm must provide a retail client with information on costs and associated charges.
The rules then go on to talk about the charges information being provided in good time before the provision of the service to the client.
There are also rules about how the charges information is provided to the client – i.e. it must be in a “durable medium” so that the client is able to access and refer back to this specific information at a later date as well as keeping the client notified of any material change to the information originally provided.
As a Sipp is classed as a retail investment product (COBS 14.2), Claire Trott, head of technical support at Talbot & Muir, says charges for Sipps need to be shown in the key features illustrations provided to the client at point of sale by the ‘seller’.
Generally Ms Trott says the adviser will provide an illustration during the recommendation and the provider will provide one at the point of establishment but this can vary due to the interpretation of the rules.
What is included in the key features illustration is set out in COBS 13. This means the KFI should show all applicable charges, how they will be charged including any adviser or investment charges and details of the interest retained by the provider.
Gregory Kingston, head of marketing and proposition of Suffolk Life, says he would be surprised if the regulator has not made a mental note to look at the very high exit charges that have sprung up at some Sipp providers, once they have dealt with their Third Thematic Review findings.
Mr Kingston says: “The question has been raised as to whether some are so high that they break Treating Customers Fairly outcome six, and there is clear evidence that advisers and their clients are frustrated by them and that they are a barrier to moving to another provider.”
