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Providers told to clean up Sipp charges

Providers told to clean up Sipp charges

A lack of conformity in the way Sipp providers present charges is causing problems for advisers, according to Gill Cardy.

In September this year capital adequacy requirements for Sipp providers were introduced, raising the cost of doing businesses for providers offering non-standard investments.

At that time, FTAdviser contacted a number of providers to find out how the new rules had impacted their fees and charges.

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Embark Group chief executive Phil Smith predicted the total costs clients pay for their investments, pensions, and advice would face a tightening squeeze over the next two years.

But Ms Cardy, insight consultant for wealth and protection at Defaqto, has now said Sipps face another challenge, in making their charges easier for advisers to compare.

“There are various charging structures applied by Sipp and platform operators making it difficult for advisers to carry out simple comparisons on the charges their clients are likely to incur.

"The headline set up or annual fees may be low but in these cases there are often additional fees for additional transactions or reports for example."

She added in other cases there may be a higher annual fee, but all other costs are included, with the value of the platform dependent on how a client is likely to make use of its features.

Ms Cardy added some platforms make a charge based on the total value of the portfolio, while others apply charges to individual product elements.

"This means that advisers will need to ensure they are aware of all charges incurred for a specific investment route their client is looking to take.”

However Mike Morrison, head of platform technical at AJ Bell, said the disparity is a normal function of the Sipp market, representing its difference.

“In a competitive market there are naturally going to be different options for advisers to choose from and this gives them access to a range of different products to suit different client requirements.  

"There are a number of reports produced by industry consultancies such as the lang cat and Platforum that do an excellent job of comparing platform charges and features."

He added costs will only be one element an adviser needs to consider when recommending Sipps or platforms.

"First and foremost they will be focused on client suitability and then product features and customer service are likely to be just as important considerations as cost.”

Stuart Read, independent financial adviser at Devon-based Sabre Financial, said this did not present a major problem, since advisers can "drill down" into the information provided.

"Certainly for a major market you can be misled, to the untrained eye the headline cost of a lot of things are delibartely meant to appear low whereas often a Sipp that has a higher initial charge might be far better value.

"Advisers need to look under the bonnet and to make decisions depending on what clients need from their Sipp."