PensionsMar 23 2015

The importance of being serviced

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The importance of being serviced

Picking the right Sipp provider is no easy task. Service can be a sticking point for many advisers. But how do different operators make sure they are doing the right thing by their clients?

In the run up to September 2016, each firm will need to meet the new capital adequacy requirements. Advisers will be focusing on due diligence of a company and how suitable it is for their clients.

In July last year, the FCA published a thematic review into enhanced transfer values and Sipp operators. The review came with a warning to advisers after it found poor advice was given in a number of cases.

Later in the year, the long-awaited confirmation of the capital adequacy requirements was announced.

The new requirements come at a time when the popularity of Sipps is increasing by the year. Each quarter, Sipp operators must submit data to the FCA to show the number of Sipps sold during that time period. The regulator will also occasionally publish the information for the public, but the last, Retail Investments Product Sales Data Trend Report, was from August 2012. Information received by Suffolk Life from the FCA shows the number of Sipps set up has increased dramatically since then.

Chart 1 shows the number of Sipps set up has in fact soared since Q4 2012 from roughly 50,000 to between 150,000 and 200,000 per quarter. In 2014, the numbers seem to have waned. Chris Jones, strategic partnerships director at Suffolk Life, says, “I wouldn’t give too much credence to the latest quarter’s figures. We’ve seen the FCA frequently revise recent data and some of those revisions have been quite hefty.”

He believes the increase in number can be put down to the RDR, which came into effect on 31 December 2012. Particularly in Q4 of 2012, people were gearing up for the RDR and making a switch to platforms.

“All the market feedback is that Sipps – and platform Sipps in particular – are very buoyant and Sipps are the natural home for investors wanting to take full advantage of the new pension freedoms,” he adds.

The FCA numbers show there are 95 firms still actively selling Sipps; three years ago there were 110. The reason for this could be consolidation. Roughly 20 books have been taken over in the last three years, and with the publication of the FCA’s third Sipp thematic review, capital adequacy requirements and the “Dear CEO” letter, many have pointed to the pressures on smaller providers and the likelihood of firms withdrawing from the market. However, the FCA statistics do not yet show this as the case.

It is clear that Sipps are growing in popularity, but in order to keep that up, service must now play a large part in an operator’s proposition.

Table 1 covers Sipp complaint data, looking at how many formal complaints were made, how many were upheld and how much compensation was paid out in the 12 months to 31 December 2014. Data is taken from the Money Management Sipp survey results, which covers a total 51 providers and 71 plans, although just 19 plans returned information about their Sipp complaints.

Complaints

Unfortunately, the latest information from the Financial Ombudsman Service (Fos) was not published at the time of press. However, the data for the year ended 31 March 2014 shows the number of complaints for small self-administered schemes (SSASs) and Sipps reached a total of 1,039 – up 49 per cent from the previous year, which saw 697 complaints.

The Fos called this a ‘significant’ increase, and the reason behind many complaints involved advice to invest in unregulated collective investment schemes (Ucis) within a Sipp. The year saw a total of 15,938 complaints, and Sipps made up 6.5 per cent of that figure.

Figures in the Table are varied, from no complaints to 448 for one plan. Avalon is unique in saying it did not receive any complaints during the 12 months to 31 December 2014. Talbot & Muir received just three for its Elite Retirement plan, only one of which was upheld. Reasons for the three complaints include an issue related to the service from the scheme’s bank and a late placement for an investment. The compensation paid out for the upheld complaint totalled £200. The plan itself has a total value in force of £620m and 2,211 full plans.

Complaints are not directly comparable due to the size of each individual plan. But at the other end of the spectrum, Suffolk Life’s deed poll scheme Sipp had 448 complaints, 276 of which were upheld with a total £71,554 paid out as compensation. The scheme has a much greater total value in force of £2.5bn and has 5,826 fully self-invested plans.

Suffolk Life says the reasons behind the complaints cover a range of issues, from delays, incorrect or insufficient communication, or a change in its allowable investment schedule.

Westerby said it received seven complaints throughout the year, and just one was upheld. Six were for poor customer service, the group says.

But customer service ultimately comes down to personal experience and expectations, so it is a difficult element to ever measure properly. The majority of complaints, according to the Table, were not upheld and the compensation paid out was minimal.

Outsourcing

Outsourcing is another element that could be a decider when picking the right provider and service for your client. The survey asked Sipp operators the following questions:

- Can any service be delegated to a third party?

- Do you insist your own solicitors, property manager or block insurance are used when property is purchased?

- Is this plan type administered on behalf of another organisation?

- Does your company administer plans on behalf of other providers or distributors?

Table 2 looks at each plan in detail. All 71 plans responded to this section of the survey, so we have a clearer view of the larger market. Regarding the first question, 12 providers said that services cannot be delegated to a third party, five operators said it was not applicable, three plans did not disclose the information and 51 per cent said outsourcing to a third party is accepted.

Perhaps more importantly, the second question looks into whether clients are able to pick their own solicitors or property manager – which can be a huge element when investing in one of the most popular standard assets in a Sipp, commercial property. Property is a difficult enough asset to purchase, and knowing a reliable solicitor could be key to completing on a property within the FCA’s 30-day requirement. But seven providers said they insist on their own choices. Additionally, Attivo said in its Full Sipp, it only insists on its own choice of solicitor for property purchasing. Sippchoice said similar, for clients to use its solicitor and block insurance, but its property manager is not insisted upon.

James Hay, Liberty Sipp, LV=, Redswan, Rowanmoor, Royal London and Standard Life all insist upon clients using their internal choices and are not able to allocate an external third party.

Due diligence

Another area advisers need to be aware of is how each firm undertakes their due diligence process. Each Sipp provider has a different policy and way of going about checking they are partnering with the right advisers and DFMs.

LV=, for example, says it has terms of business agreements in place with all introducer firms and will only accept business from them once it has completed both financial and permissions checks. As well as this, the group makes sure the introducer does not appear on any fraud prevention lists and it does not allow execution-only business. When it comes to discretionary fund managers (DFMs), LV= only conducts business with FCA authorised firms and it does regular checks on permissions and disciplinary actions.

Dentons says it also checks the FCA register for inclusion and permissions when it comes to introducer firms. Execution-only clients are different, and cases below £50,000 are not accepted. If a client is investing in non-standard assets, they are also required to satisfy Dentons’ high net worth or “sophisticated” investor criteria and any direct clients are always recommended to take independent advice.

AJ Bell’s Investcentre differs from many Sipp operators, as it has a document in place called “adviser handshake”. The document sets out the terms on which adviser registration is based, then the business development and customer service teams operate a formal due diligence process that includes checking permissions. It covers aspects from verification of identity and charging to communication and data protection. DFMs are slightly different, and in order for one to become an “investment partner”, they must complete an application to be considered for a panel and all checks must be agreed in advance of any new partnership being agreed.

Elsewhere, Xafinity carries out checks on all new firms and repeats them at least once per year thereafter. The background checks are performed using credit report agency Experian. “We do not allow execution-only clients to undertake certain transactions – including occupational pension transfers and non-standard investments – unless we have confirmed the knowledge, experience or investor status as appropriate,” the group says.

While each firm has its own service proposals and internal due diligence, the policy is undoubtedly going to play a larger part of the business as a whole. It is unclear what the next step is when it comes to service, the difference in allocations and the number of bespoke Sipps make it difficult for the regulator to apply an industry standard. Measuring quality of service is not an easy task anyway. If such an effort were to be started, it would not be ready in time for September 2016.