As September approaches self-invested personal pension (SIPP) providers are getting their houses in order.
Many have announced that they already meet the regulator’s new capital adequacy regulations (which come into force on 1 September) but, even with all this good news, I suspect the number of due diligence requests will continue.
This level of scrutiny is great news for the SIPP market, but it’s important we inspect more than just the capital held. Having spent a number of years (in a former life) being responsible for assessing provider propositions and financial strength, I feel I can offer a balanced perspective.
There is so much more to due diligence. Indeed, adviser-based research from firms such as AKG in 2015 placed capital adequacy as “only” the fifth most important factor to advisers when selecting a provider partner.
So, here are the six killer questions I would pose…
1. Management team
A full appraisal of the senior management team is a must including – what track record does the team have in the industry? What skills do they offer?
Also, in light of market movements, would the capital buffer cover the firm’s capital requirement? Or would they have to raise additional funding? If the latter, where from and at what cost?
2. Strategy and distribution
A fundamental consideration is how diversified is the firm’s income stream. For example, a firm offering a range of SIPP wrappers (including higher margin business such as commercial property), SSAS and third party administration services is less volatile than a business with a narrower product offering.
“Routes to market” is also an interesting point. Arguably both an intermediated and direct to market strategy further de-risks a firm’s income stream. But many advisers are concerned about direct to consumer offerings that could mean their clients are seen as orphans.
Many of the larger SIPP providers are moving away from their administration roots to become more focused on asset gathering. But this is not without risk and can often lead to a less flexible approach, perhaps with a narrower range of investment partners.
3. ‘Ease’ to do business with
In short, how easy is it to do business with the firm – both pre and post-sale?
For example, what support does the provider offer in terms of client meetings and joint seminars?
Will the provider support advisers in finding creative solutions? Is it willing to support an income payment outside of their “normal” payroll dates? Or does a “rulebook says no” culture prevail?
4. Investment approach
In particular, the following:
• What level of non-standard assets does the firm hold?
• Is the level of such assets increasing or decreasing relative to the overall book?
• Does the firm plan to continue to act as a “full SIPP” operator – and if so what risk and governance controls do they operate to ensure “safe” administration?
It is important to understand the long term product mix underpinning a firm’s new business.
Alternatively, those firms “only” offering say property investment beyond collectives, may find they are not sufficiently different to the platform market and thus find their market share at risk.
5. Trend and innovation
In an ever-changing market, it’s important for providers to continually invest in their proposition. But it’s worth looking beyond the headlines of “new” initiatives.
For instance, a move into third party administration services might be viewed as a positive new income stream. However, if the business has no previous experience in providing such services, then this may cause a dilution of effort. It may also provide added risk to that business, impacting “business as usual” activities.
Firms which can evidence both their ability to refresh their offering and how this has made a tangible contribution to their financial position will be well placed to give advisers the comfort they require.
6. Pricing
Last but by no means least… price. How transparent is the providers’ charging approach? Is it a simple, clear menu of fixed price services – if not why? Do transaction charges apply? More still if I hold additional deposit accounts?
What about exit costs? If a change is required there should by “no surprises” when it comes to exit costs.
Beware of a “pay more get less” scenario – often the platform access charge of 35/40bps for some providers can be up to seven or eight times as much as the equivalent fixed cost from a “full SIPP” provider.
Moreover, the platform may not support the range of investment and/or property options required despite the higher cost.
Mark Canning is head of proposition & development at @SIPP
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