This is typically seen as the most stable way of providing capital, with the alternative being so-called Tier 2 capital such as debt or preference shares. Only one firm has opted in favour of this approach: Michael J Field, which is currently meeting 75 per cent of its capital requirements via Tier 2 instruments.
Rupert Curtis, chief executive officer at Curtis Banks, suggests that advisers can make their own decisions as to whether a Sipp operator using debt as capital would pass their due diligence.
One issue closely related to capital requirements is how firms opt to classify commercial property holdings.
As the proportion of non-standard assets held by Sipp providers affects their capital requirements, choosing whether or not to group commercial property under this banner has repercussions. Yet there is a distinct lack of clarity or consistency on this issue across the industry as a whole. This disparity is due to a number of regulatory grey areas, according to Mr Curtis, meaning that firms have been able to set their own policy.
He says: “Provided a policy is justified, fair and demonstrable, the regulator is unlikely to be concerned. However, if there was evidence that providers had set or changed a policy purely to reduce their own capital requirements the regulator may think differently.”
Cost cutting
A further anticipated fall-out from the capital adequacy requirements was an increase in Sipp administration costs, particularly for non-standard assets. Table 2 outlines the various principal charges, while Table A shows a variety of other fees relating to the crystallisation of benefits. As the data shows, the majority of costs are levied on a fixed basis, so making comparisons is relatively straightforward.
In most cases, these costs are reassessed annually with small, incremental changes applied. Six months on from Money Management’s previous survey, and most charges have not shifted. But as always, there are a few exceptions. They include Taylor Patterson, whose Group Sipp has seen set up costs increase from £425 + 125 to £1,000 - £1,200.
Where set-up and annual fees are concerned, the majority of providers charge these at a flat rate. Those with larger funds are more likely to benefit from flat fees, but some providers convert to percentage charges at higher asset levels. This is the case for Walker Crips’ Ebor Classic, which applies the higher of 0.1 per cent per annum or £445. This means only pots in excess of £445,000 will pay on a percentage basis.
