STM Group has seen its professional indemnity insurance costs increase by £500,000 as a result of uncertainty in the self-invested personal pensions market.
In a trading update, published yesterday (November 27), the financial services group said it expected PI rises to continue for the next few years and firms to exit the market as a result.
It stated: “As a direct result of the challenges faced by the Sipp market specifically, and extrapolated to the Qrops (qualified recognised overseas pension schemes) market, the group has seen costs directly attributable to its professional indemnity insurance increase by over £0.5m on an annual basis, commencing in the latter part of 2019.”
The Sipp industry has been under scrutiny in recent years due to unregulated investments being held within many of these pension wrappers.
The Financial Conduct Authority also issued a warning to Sipp providers in 2014 about the level of due diligence needed to be carried out on these investments.
The industry is still awaiting the outcome of the Adams v Carey Pensions High Court case, which centres on the issue of due diligence by Sipp operators after the trial was concluded in March 2018, and the judgment is expected to have implications on the rest of the Sipp market.
The case centred on the question of provider responsibility when accepting investments into a Sipp and touched on similar issues to the judicial review case brought by Berkeley Burke, in which the judge found Sipp providers had the responsibility to act as gatekeepers.
The Financial Ombudsman Service has already found against more Sipp providers as a result.
Alan Kentish, chief executive officer of STM Group, said: "Outside of our control, there has been a seismic change in the professional indemnity insurance market capacity resulting in disproportionate increases in premiums.
“Certainly, this is likely to remain the case for the next couple of years until the insurance cycle moves on. Ironically, opportunities will arise for acquisitions as some firms will look to exit the market as a result of these increases.”
In February, STM paid £400,000 to buy Carey Administration Holdings Limited, which owned 70 per cent of Carey Pensions and 80 per cent of auto-enrolment provider Carey Corporate Pensions UK.
The remaining minority interests are held by Christine Hallett, chief executive of the pension provider, who continued in her role.
STM stated that a delay in the rebranding and relaunch of these Carey products has had a knock-on effect on new business at the firm.
In the update, the company stated: “Two factors have affected new business levels at Carey; the rebranding has taken longer than expected and this has caused delays to the relaunch of products; and the successful application of the Carey Master Trust to The Pensions Regulator was more lengthy and time-consuming than anticipated, delaying new business flows and incurring an increase in one-off professional costs.”
Due to the added unexpected costs and a drop in new business, the firm expects its revenue for 2019 to be approximately £23m and reported profit before tax is expected to be approximately £3.8m.
Mr Kentish, said: "The last six months have been incredibly frustrating, the headwinds on completing certain initiatives such as the Carey rebranding and our flexible annuity rollout have slowed down our new business pipeline.
"Whilst it is disappointing to start on a rebased 2020 profit before tax, I feel confident that we have the right tools in place and growth opportunities available to us to deliver enhanced underlying profitability.
“I look forward to updating the market as to our successes on these various matters as we progress into 2020."
amy.austin@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
