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Advisers must scrutinise the opaque charges
Uncover Sipp costs
Mary Stewart Viewpoint
The FSA’s recent review of smaller Sipp operators that found disclosure of fees and charges was of “variable quality” is hardly a ringing endorsement of clarity and transparency.
But it is not just the smaller providers. With over100 Sipp providers, the diverse fee structures can be a headache.
What are some of the key hidden costs that advisers need to scrutinise?
Time-cost charges - a particular bugbear of the FSA which described them as “opaque”. Members do not know the bill in advance and cannot compare prices. Experienced administrators should be able to set fixed prices for the vast majority of transactions.
Property transaction fees - admin costs are the same whether a property costs £100,000 or £1m, so there should be no justification for additional costs but at least two leading providers - James Hay and AJ Bell on its platinum product - alter fees according to property value.
Professional partners - the ethos of Sipp choice extends beyond investments to the free use of external expertise such as solicitors, lenders, stockbrokers and wealth managers. But some Sipp providers insist clients use panels or charge extra for going off panel. Aegon and Standard Life fall into the former camp.
James Hay charges several hundred pounds extra if a non-panel solicitor is used for property purchase. This prevents members from using trusted advisers or shopping around and raises questions over payments from the panel.
Investment choice - only a handful of providers now allow access to the full range of investments that do not attract punitive tax charges. Some providers insist a certain amount of the Sipp fund must be invested in house. LV= insists on a minimum £3,000 in its own funds.
Standard Life charges extra for investing outside its core funds or through an external investment partner. Not only is this a restriction on the investment freedom but, even with the fee menu to hand, it is very difficult to work out all the charges that might apply.
Bank accounts - the Sipp account enables contributions to be paid, investments made and income taken. For a modest admin fee, Sipp members should be able to deposit cash holdings savings accounts of their choice so they can seek higher rates and spread the money to keep within compensation limits.
Standard Life allows external accounts but these fall into its outer ring of investments where various charges could apply, including an admin charge of up to £431, depending on overall size of the fund and how it is invested.
A final hidden cost, rarely mentioned, is where a member is forced to pay transfer fees because they have grown out of an existing plan. The best solution is to look for future-proofed Sipps from providers that can do both the basic and the bespoke at reasonable cost with high levels of service.
Mary Stewart is a director of Hornbuckle Mitchell
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