Lang Cat warns on Sipp due diligence

Lang Cat warns on Sipp due diligence

Advisers have been warned to steer clear of "banal" questions which provoke marketing responses during the self-invested personal pension due diligence process.

A research piece written by The Lang Cat and commissioned by provider @Sipp listed a number of key do's and don'ts for the Sipp due diligence processes.

Advisers should ask providers to share what their books of business look like, such as how many clients they have, what the portfolio sizes are and its profit and loss figures.

Article continues after advert

The paper said: "A good provider will use this information to give you a response that’s appropriate for your business."

Advisers were also told to ask questions which concern their business, rather than "banal" ones which can provoke a "copy/paste marketing response".

"Ask questions that really concern you as a business. Think about things that have been a pain in the neck for you in the past and interrogate the providers on them."

Lang Cat principal Mark Polson said: “Due diligence isn't about getting a sales brochure from a provider and neither should it be a forensic view of one aspect of a provider's proposition or performance.

“Instead of being a tick-box exercise, due diligence and suitability requires advisers to assess the market with an open mind and they must also be prepared to challenge the result of a provider’s responses in light of specific client needs.

"There’s no getting away from the level of research and detail that advisers must cover as part of this but what this report aims to prove is that with a robust process in place, due diligence doesn't have to be too daunting a task.”

The final suggestion is to narrow down your options to a shortlist before issuing due diligence questions.

The Lang Cat suggested to be wary of third-party tools and ratings that can often be manipulated to get the answer a provider is looking for.

"They can also include information skewed by marketing teams. Due diligence shouldn’t be a tick-box exercise."

Richard Ross, director of Norfolk-based Chadwicks, said: "I think the guide represents an excellent aid, providing an effective due diligence template that advisers can use to guide their own process.

"The scepticism of third-party rating tools is healthy; the emphasis on adopting a due diligence process that reflects your own practice makes good sense and the need to challenge provider responses – the ‘so what’ question – is well made.

"There is a small but growing industry providing tick-box solutions to due diligence and research. It is refreshing to read a report that exposes the emperor’s new clothes nature of many of these."