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Extension of IGC oversight to cost Sipp clients

Extension of IGC oversight to cost Sipp clients

Extending the remit of Independent Governance Committees (IGC) to cover drawdown may cost self-invested personal pension (Sipp) customers, according to AJ Bell.

In its response to the Financial Conduct Authority’s (FCA) consultation on expanding the remit of IGCs, which closed this week (July 15), AJ Bell warned there is a risk that Sipp clients may face extra charges for little or no added benefit and that IGCs replicate the work already being carried out by firms.

As outlined in the consultation paper Independent Governance Committees: extension of remit, published on April 15, providers that are offering non-advised drawdown will have to create an IGC which will be in charge of ensuring that investment pathways offer value for money to their clients.

This means providers that currently don’t have these committees in place will have to create them or stop taking non-advised customers.

IGCs are already in place at workplace personal pension schemes where they provide independent oversight in accumulation.

But in January the FCA proposed in its Retirement Outcomes Review to implement default investment pathway solutions for pension drawdown, which will also be overseen by IGCs.

This was after it found many consumers were solely focused on taking tax-free cash from their pensions and were "insufficiently engaged" with deciding how to invest funds that moved into drawdown.

If the new rules are introduced, the IGCs will be asked to weigh up the quality of the pathway against the costs and charges paid by the consumer.

AJ Bell said there was a risk that this will be replicating work already carried out by firms under their existing regulatory obligations.

Tom Selby, senior analyst at AJ Bell, said: "We do not believe the benefits of such a move would outweigh the costs.

"This is particularly the case for individual Sipp members. Given these customers make an active choice to invest via a Sipp and are therefore much more likely to be engaged with their investment choices, demand for pathways solutions among this group is likely to be relatively low."

He added: "If the pool of customers that use pathways is relatively small, the per-customer cost of introducing IGCs for them will be high.

"In reality these costs would be subsidised at least in part by customers not using pathways who would not be in a position to receive any benefit that might arise."

Instead, AJ Bell has stated that it should be the role of the firm to ensure that the investment options offered to clients are suitable.

Mr Selby said: "In our view the obligations placed on providers and senior managers by existing and planned FCA regulation should be sufficient to achieve the outcomes the FCA are seeking."

As AJ Bell already has an investment committee in place with a number of independent, non-executive members to provide oversight on matters such as value-for-money, Mr Selby argued that "an IGC would risk duplicating, either in full or significant part, governance arrangements that are already in place".