He says: “Overall, this has led to a general limitation of the investment flexibility offered by Sipp providers. It has also created a problem for those clients that currently hold illiquid assets in their Sipp, where no [other] Sipp provider wants to get involved.”
An interesting development on this front occurred last October, with the FCA issuing a ‘Dear CEO’ letter to all Sipp firms, in light of issues highlighted by the previously mentioned ongoing court cases. The letter warned companies to consider the implications of the judgments in relation to non-standard investments, and urged them to contact the regulator should there be any concerns about their ability to meet financial commitments.
“We recognise that if a firm may not be able to meet its financial commitments, it may be in the interests of some of its customers for part or all of its business to be sold to another firm,” the letter stated.
Nigel Bennett, sales and marketing director at InvestAcc, says: “The capital adequacy requirements have had a huge impact on Sipp firms; many have needed to raise additional capital in order to meet their requirements, as is seen by the information published by Money Management. We are seeing increasing focus on this issue as advisers are rightly asking a number of questions to understand the business and to avoid making a mistake with their client’s pension.”
Details of how firms are meeting the capital adequacy requirements can be found in Table 1. Promisingly, all firms that have taken part in this survey are meeting the 100 per cent threshold, as was the case six months ago. And there are some notable increases: JLT has raised its figure from 2,000 per cent to 3,000 per cent.
In terms of how this is held, using cash or reserves is still the favoured option, although some companies – such as @Sipp and Westerby – cover 5 and 7 per cent, respectively, with debt or preference shares.
As providers suggest, the classification of non-standard assets also remains a live debate. Commercial property is one particular dilemma on this front, with some treating it as a non-standard asset.
The majority of companies tend to hold a proportion of non-standard assets, but this ranges from InvestAcc, which holds less than 1 per cent, to the 49.2 per cent held by Morgan Lloyd.
Paul Bagley, director of distribution and marketing at James Hay, describes the reasoning behind the varying classifications. He says: “Some products, even the most common ones, could have traits that would mean that in line with the FCA’s guidance they would be classed as non-standard investments.
