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Categories:Other,Regulation

MM leader: FSA must act if Sipp charges are manipulated

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With the regulator taking a close look at the capital adequacy levels of Sipp providers, you can understand the recent flurry of speculation regarding consolidation in the sector.

The FSA is understood to be concerned about the financial position of a number of providers, adding to a list of previous worries. Earlier this year, the regulator outlined proposed changes to address a lack of charging transparency, particularly around how much of the cash account’s interest is retained by the Sipp firm.

As Sipps become increasingly popular with investors, the FSA is right to raise more than an eyebrow or two at the current capital adequacy requirements and poor disclosure evident in some sections of the market. With regulatory concerns adding to commercial problems driven by current market volatility, many smaller players are facing significant challenges.

There are well over 100 Sipp providers in the market and it is inevitable that this number will reduce due to the regulatory and commercial pressures being exerted.

A report this week from Defaqto unearths other areas the FSA should be keeping a close eye on. Top of the list are the “pay to play” panel fees levied on discretionary fund managers.

Defaqto is concerned Sipp providers are reducing their AMCs to appear as competitive as possible to the end investor but are increasingly being subsidised by alternative sources of revenue. This could end up hitting the unsuspecting investor who may get a lower AMC but could end up paying for the extra charges that the Sipp levies on the DFM.

There is always the danger that needless regulations end up hitting investors’ pockets without offering them any tangible benefits.

However, if current charging structures are being manipulated by certain providers to try and make their propositions appear cheaper than they really are, the FSA should add this issue to the list of Sipp problems it is looking to address.

Free thinking

The FSA says it is clamping down on misleading financial promotions with a 32 per cent increase in the number of promotions withdrawn following regulatory pressure. Will this tough stance be extended to the Money Advice Service’s recent misleading “free advice” advert? We are not holding our breath.

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Readers' comments (3)

  • It shouldn't be forgotten that the FSA chose to regulate SIPPs as retail investment products - a mistake in my view. This becomes significant when one starts considering some of the possible regulatory actions suggested in the Defaqto paper – because similar rules would presumably also have to apply to other packaged personal pension products (and GPPs and group SIPPs?). For the FSA to regulate in this area would be like wading through treacle. That said it is right that the FSA continue to push SIPP providers for greater disclosure and transparency and importantly clarity over fees. I think the points that Defaqto make on revenue sharing deals with platforms and subsidies from DFMs are well made. However some of the other areas are much more controversial – for example banning cash rebates would probably destroy several SIPP businesses On fees generally my concern is that there are only a limited number of profitable SIPP providers – and I don’t believe that many are “profiteering” through rebates and the like – although there are exceptions. By all means push for greater clarity and harder disclosure – but don’t throw the baby out with the bath water. There are three quarter of a million SIPP investors and most seem very happy with all the advantages that SIPPs bring.
    John Moret
    MoretoSIPPs

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  • MoretoSIPPs than meets the eye? Unfortunately I have seen too many cases where the consumer doesn't know why he/she has a SIPP and had no idea what other options were available when they opened an account, some were told that they had to transfer ALL the pensions into the SIPP, S226 with GAR as well. In a few cases I have seen the trustees refuse to allow UCIS investments, those trustees were often replaced.

    Yes MoretoSIPPs than meets the eye!!!

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  • @Exasperated Me

    You are confusing the suitability of advice with the product selected.

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