SIPPs – coming to the end or coming of age?
I read John Moret’s article ‘End of era for SIPPs world’ with interest the other week. I can broadly agree with many of the points that he makes but might add the extension to the title ‘...perhaps not a bad thing!’
Like John, I have been involved with SIPPs since the early days. Indeed, for a good while I worked with John at Provident Life, which later became Winterthur - one of the acknowledged pioneers in the SIPP market.
I totally accept the regulator was perhaps a bit slow in applying a regulatory regime to SIPPs, finally catching up in 2007. At that point, rather than trying to develop a SIPP regime, there was the feeling SIPPs were shoehorned into the existing regime.
The principle that all SIPPs were personal pensions seemed to be a major factor, not that all personal pensions were SIPPs. Therefore the starting point was the personal pension regulatory regime.
When SIPPs were first created the differentiation was very much that they offered a wider range of investments than a standard personal pension. The cachet of having a SIPP was balanced by the need for an extra bespoke administration layer for which charges were levied (I remember a stock slide in my collection ‘specialists rather than generalists’).
The introduction of income drawdown in 1995 was a significant piece in the SIPP jigsaw – retirement portfolios needed to be tailored and real value added. At the time I remember a lot of SSAS providers launching SIPPs to provide the retirement solution for clients who had been in SSASs (the SSAS providers also had the expertise in the bespoke pension market).
Following the introduction of the regulatory regime in 2007, many fund manager/stockbrokers who had forged relationships with SIPP providers decided there was scope for them to take control themselves and set up their own SIPPs.
The SIPP market flourished and all sorts of specialists decided to get in - big and small, expert and novice (and I suppose capitalised and non capitalised). The definition of SIPP was diluted. Providers offering access to a range of funds from other managers became SIPPs. Technology assisted and the growth of platforms meant a streamlined approach. Today the market is often described as split between ‘platform’ SIPPs and ‘bespoke’ SIPPs.
However, the regulatory regime never caught up. Thematic reviews started positively but perhaps never looked under enough bonnets. The regulatory ‘shoehorning’ continued with the implementation of the CASS rules on client money (rules not designed for SIPPs).
And then the investments – the move from a permitted list meant companies designing investments and seeking that ‘SIPP compliant’ label. (If you Google such a phrase today you will still find some interesting investments!)
Over the years a whole lot of ‘alternative’ investments have passed across my desk with a view to considering whether they should be allowed of not. Often the answer, much to the dismay of our sales guys and the adviser involved, was no.
Some SIPP providers accepted alternative investments, direct, through advisers or via introducers and some have caused problems. As a result we are now left arguing about liability and responsibility.
The SIPP market became something of a victim of its own success and the potential detriment to the consumer became clear. In 2012 the regulator consulted on capital adequacy rules to help remove some potential problems. The basis was debated and amended (not necessarily to the liking of all) but with a fair time to prepare. There have been, and I’m sure will continue to be, purchases, sales and consolidations and even perhaps the odd casualty, but good providers with business plans and with SIPPs being a core part of their business will succeed.
As John says, perhaps it could be the end of an era but perhaps more it is a coming of age – the cottage industry no longer belongs in the cottage. In the post-pension freedoms world an effective and consumer-friendly SIPP market is vital!