I was asked the question “how do advisers manage more complex investments that are not compatible with platforms?”, I was somehow immediately reminded of ‘Educating Rita’, even though it must be 30 years since I saw the film. Fans will have to excuse any minor inaccuracies – and the fact that I saw the film, not the play – but there is a scene where the English literature professor, played by Michael Caine, set an essay along the lines of “How would you overcome the difficulties of staging a production of Ibsen’s ‘Peer Gynt’?” Rita, played by Julie Walters, gets right to the point. Her entire essay is just five words long: “Do it on the radio.”
Like Michael Caine, Money Management wanted a thorough examination of the issues, not a shoot-from-the-hip “Do it off-platform”, admirably succinct though it may be. An alternative, even glibber (although not quite as pithy) response might be: “If it is not compatible with platforms, why not rule it out? Problem solved!”
We are not going to test our thinking if we leap in with solutions, particularly not if we let the tail wag the dog. The above question arises due to advice models, certain types of investment and their characteristics, and clients themselves. There are some interesting reflections and parallels of issues the bespoke Sipp market is dealing with. Let us start at the beginning.
There is no telling what the next client might bring. The circumstances and needs of many will have similar themes and often not require anything particularly unusual in the solution. It should be relatively efficient to deal with such clients – so much so that they may be more prone to online guidance and self-directed approaches to investments.
However, some clients will be different. They may bring unusual circumstances or ideas of their own. Dealing with them may be less efficient and more risky. Of course, advisers are not obliged to deal with them but rather than turn down clients or accept lower profit margins, they could potentially charge a premium.
If the advice model is independent, then all investments are potentially in scope, from the bespoke Sipp stalwart commercial property to structured products, term deposits and, more unusually, unquoted shares, non-mainstream funds and other esoteric investments (such as gold or loans).
None of those will frequently arise – some may never – but clients may look for them and advisers may not want (or be able) to rule them out before the start. Of course there are greater risks associated with recommending or allowing such investments than the more routine cash and collectives approach, both initially and ongoing, to ensure they remain suitable.
Whether on- or off-platform, Sipp operators can potentially provide what I might, slightly tongue-in-cheek, refer to as a ‘second line of defence’. Their due diligence on investments can never guarantee non-failure, but nonetheless it should be a valuable check and filter. It should also be noted that, despite three regulator thematic reviews, it still does not go as far as individual suitability – quite rightly, as Sipp operators do not hold the relevant permissions and the distinction between adviser and provider should not be muddied.
It is the characteristics of the more complex investments which can raise issues for both adviser and client. They are often illiquid, indivisible and, arguably the most persistent ‘thorn in the side’, hard to value.
Advisers are running businesses and, as with any business, time is money. Recurring reviews, often annual but perhaps more frequent, are part of the client proposition and that means, among other things, arranging an up-to-date valuation of clients’ assets (particularly at the point of crystallising benefits). So the less time that is required to produce that valuation, the better – the clock is ticking and profitability is at stake.