Sipps are trying to innovate

Major transactions in 2018 included Curtis Banks’ acquisition of the Hargreave Hale Sipp book, Embark’s acquisition of the Liberty Sipp and Hartley Pensions acquisition of the Lifetime Sipp and the Greyfriars Sipp.

The number of new market entrants has been far outmatched by those consolidating, but the past 12 months did see some notable arrivals, including Seven Investment Management and robo-adviser Moneyfarm (albeit through a partnership with the aforementioned Embark).

There’s nothing out there that makes you think ‘that’s weird and wonderful, let’s use them ahead of another Jamie Smith-Thompson

Despite the arrival of new challengers, the general consensus is that consolidation in this market is set to continue, as evidenced by a poll of financial advisers at a Dentons Pensions event in January 2019.

For advisers, this lack of competition is frustrating and can mean that spotting genuine innovation is extremely difficult.

“They’re all much of a muchness, if I’m being honest,” says Jamie Smith-Thompson, managing director of specialist retirement IFA Portafina.

“There’s nothing out there that makes you think ‘that’s weird and wonderful, let’s use them ahead of another’”.

Sadly, Mr Smith-Thompson’s remarks are echoed by plenty of others in the market. “There has been limited innovation in the UK Sipp industry in 2019,” says Adam Wing, a financial adviser at UHY Hacker Young’s Nottingham office. “

Hunting the innovators

While it would be easy to dismiss the entire sector for a lack of progress, others disagree. Advisers and providers, alike, say there have been great strides forward in technology, product design and permitted investments.

“There have been innovations in terms of what Sipp providers are allowing for underlying investments,” explains James Lindley, a financial adviser and founder of Castell Wealth Management.

“Recently some providers have allowed individuals the ability to invest in peer-to-peer platforms through a Sipp. 

“However, this was not adopted by most major Sipp providers due to the ‘connected members’ rule making it not worth the risk to the Sipp operators and their members.”

Sipp operators have been very careful about the investments that they permit for inclusion in recent years, after the collapse of Harlequin Property, and the numerous legal disputes which followed, says Lindley.

“The industry has moved to ensure there are clear distinctions between providers accepting non-standard assets and unregulated investments and those that are happy to accept these riskier assets,” he says.

“The vast majority of providers nowadays have reduced their exposures in recent years. There has also been a clear differentiation between those providers offering full Sipp services and those companies that could be deemed 'platforms'.”

Product developments

On the product side, there has been innovation which offers more options to clients in both the accumulation and decumulation stage.

Those scrutinising the available products in today’s Sipp market will notice that providers have started to offer wrappers that incorporate multiple savings pots or can provide a full look-through of an individual’s total net worth.

Anthony Carty, group financial planning and business development director at Clifton Asset Management, says innovation is happening and clients are benefiting from more choice than ever before.

“From our own experience, the launch of our Morgan Lloyd Viewpoint Portfolio, gives clients the ability to, not only hold and trade traditional investment assets, but also to include personal bank accounts, and property assets,” he says.

Andrew Gilbert, head of retirement products and proposition at LV=, agrees that providers are beginning to get more creative in the innovations they bring to market.

“We’ve seen some really impressive innovations,” he says.

“Sipp products have emerged that include multi-asset fund blends, or investments that allow full flexibility, or can flex with changing income needs or lifestyle choices during decumulation and take inheritance tax into account.”

Decumulation caution

When it comes to the decumulation phase, product innovation has been slower to arrive.

After the global financial crisis, advisers had initially been wary of retirement products that cost more but offered some form of drawdown guarantee.

So-called ‘third way’ annuities – labelled because they were a third option to annuitisation or income drawdown – were launched into the market during the crisis but they never achieved mass appeal, as advisers were suspicious of the charges and the providers’ use of derivatives to deliver the guaranteed income element.

Fast forward a decade, though, and a new type of Sipp product has been launched.

In February, Just Group announced it had entered a partnership with Novia Financial to offer a guaranteed income product.

At the time, Bill Vasilieff, chief executive officer at Novia said investors increasingly “want a degree of certainty, but do not want to purchase a more restrictive annuity.”

Advisers have recognised the appeal of this type of product, but underscore that it will never become the default for every client.

Adam Wing, financial adviser at UHY Hacker Young, says: “This type of innovation is likely to suit some clients more than others, and people must remember to consider the cost of the Sipp wrapper before undertaking this type of arrangement.”