Sipps have been around for almost 30 years now and are still very popular despite the well-documented issues facing a small minority of providers.
It was reassuring to hear FCA director of life and financial advice Deborah Jones say at a recent Select Committee meeting that the regulator believes there is a place in the market for a “wide range of investments”, including in Sipps, but that it is important riskier products are only sold to suitable consumers.
The FCA holding the spotlight on the Sipp sector is a good thing and I agree with Jones that the product should only be available to those it is suitable for.
It is unfortunate that we have ended up where we are but this is in part due to some Sipp providers having built their book of business very quickly but on loose foundations. They took the easy option and accepted the business offered by the promoters of unregulated investments who were able to introduce dozens of new clients each month. In addition, a number of providers have written business on very low-cost terms in an effort to build scale as quickly as possible.
While this may look like a good deal for clients, ultimately, that provider has to make a profit at some point if it is to survive as a business and meet both its capital adequacy requirements and professional indemnity cover.
The aim might be to grow and sell on the business as quickly as possible but, as we have seen, selling a stricken Sipp business is no easy task. Ultimately, the clients of that stricken business suffer.
It would be unfair to say that all unregulated investments are unsuitable. There is still a place for them as clients and advisers look for more attractive returns. Some providers will still consider them but there will be a more vigorous due diligence process.
This is why it is crucial for clients and advisers to be very careful when they are assessing the provider they are considering using. Cheap is certainly not “cheerful” in the Sipp world, as we have seen a number of times now.
The adviser needs to ensure there are robust systems and processes in place, that the provider’s Sipp book does not contain distressed or toxic assets and that they are committed to the long-term future of the sector. We are likely to see more consolidation in the market and it is the high quality, responsible and successful providers that will thrive.
Given the benefits of using a Sipp and the potential impact of the negative coverage, what is most important is for the advice community and Sipp providers to come together and protect the sector for the good of those clients that want the flexibility they can offer.
David Fox is director of sales and marketing at Dentons Pension Management