DentonsMar 6 2019

Sipp market to continue to grow despite court clashes

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Sipp market to continue to grow despite court clashes

Demand for self-invested personal pensions and small self-administered schemes will see further growth this year, Stephen McPhillips, the new technical sales director at Dentons Pensions Management, has said.

Despite a couple of high profile court cases resulting in increased regulatory spotlight on the industry, Mr McPhillips, who succeeded Martin Tilley in December last year, is positive about the outlook for Sipp and Sass investments in 2019.

He said: "One of the things that affected people moving into Sipps and Ssas towards the end of last year was the fact that markets were fairly depressed.

"So, some advisers were telling clients: 'If you transfer now you're effectively crystallising a loss, but if you leave your money invested you may get the value of that investment back'."

But he expects business will also see an increase as a handful of legal battles, such the one involving Carey Pensions, which is still awaiting judgement, come to a close and bring full clarity to the industry on what is expected of providers' due diligence.

Combined with a general increase in pension awareness, with the onus now being on the individual saver to educate themselves about pensions, this will see an increase in business, he said.

He added: "General pension awareness is higher than it's been historically, and people are a lot more engaged now than they were.

"And with more and more defined benefit schemes closing, more and more people will have to be aware of what the alternatives are."

Clarity on due diligence

Undoubtedly, the industry has increased its focus on due diligence.

Nevertheless, Mr McPhillips explained: "We are in a period of uncertainty, there is no question about that.

"The extent of Sipp providers' due diligence work is really a question at the moment, and in light of the recent court cases, Sipp providers are conducting possibly more due diligence now than they had previously."

Sipp provider Rowanmoor is in the process of introducing a separate fee for due diligence and ongoing work on complex investments.

The provider revealed in a letter dated February 27 that it was introducing a one-off fee of £500 plus tax for carrying out detailed due diligence on the investment and investment provider before accepting new business, as well as an annual fee of £150 for due diligence on new and existing investments.

It also introduced a new fixed amount of £500 to cover the administration work when borrowing is first taken out and a new fee of £160 to cover the cost of processing loan redemptions.

This came on the back of recent court action, which saw the Financial Conduct Authority outline a clear position on what it expects of Sipp providers in terms of due diligence.

In the landmark ruling against Berkeley Burke, in favour of the Financial Ombudsman Service, Mr Justice Jacobs said a Sipp provider could not rely on a perceived duty to carry out business as requested by the client without considering the outcome in line with FCA client protection rules.

He also set out four instances when a Sipp operator should intervene, including when the Sipp provider had received information which cast doubt on the integrity of those who were promoting the proposed investment, or as to whether underlying assets actually existed, and the Sipp provider learnt of problems, such as a possible insolvency, which affected the proposed investment.

Berkeley Burke has been granted permission to appeal the ruling and Mr McPhillips said the industry was holding its breath for the final judgement of the case, and the clarity it would bring. 

He said: "We will see more providers coming up with charges targeted at due diligence and complex investments; it's nothing new but it's gaining more prominence and the reason for that is there’s a lot of due diligence to undertake for any non-standard investments."

Increased consolidation

Additionally, he expects there will be an increase in consolidation of Sipp and Ssas providers, which has not occurred at the rapid rate originally expected.

When the FCA published its statement in August 2014 confirming the new capital adequacy rules that Sipp providers must meet from September 2016, it was expected to become a catalyst to finally kick-start the consolidation process.

Under the new rules calculation was based on the assets under administration over the past four quarter-ends, rather than at a set point in time and a fixed minimum capital requirement was set to £20,000.

Mr McPhillips said: "There have been a few big changes and consolidation in the last five years, but not at the pace we'd expected, off the back of capital adequacy requirements.

"People expected that to be a catalyst for change but it simply hasn't happened at the pace we were expecting."

He added: "Some Sipp providers are finding it more difficult to consolidate because of toxic assets.

"So what capital adequacy hasn't done is force the pace of consolidation that people expected, and of course, we are still waiting for clarity.

"But, as the capital adequacy requirements really start to bite, more and more providers will be forced to look to consolidation."

victoria.ticha@ft.com