Sanlam says fixed charging structures for esoteric investments in Sipps will hold back consolidation as the FSA prepares to increase the capital that firms are required to hold in reserve.
Last June, Money Marketing revealed FSA plans to increase the capital adequacy requirement for Sipp providers in a bid to boost investor protection.
Sipp providers are currently required to hold reserves equal to six weeks’ annual audited expenditure but FSA pensions and investment policy manager Milton Cartwright told delegates at a Henry Stewart conference last November that this could increase to two years’ annual audited expenditure.
Sanlam UK head of strategic relationships Herman Sandrock says the firm is looking to acquire rival providers ahead of the RDR but has backed away from several deals because the management charges for unusual investments in some Sipps cannot be increased.
He says: “A lot of the smaller Sipp providers have allowed pretty much any investments into their products, particularly during the good times. The problem this presents for the market is that nobody wants to buy them because they are not scaleable.
“We have found that a number of Sipp contracts have a guarantee not to increase charges baked in. If the FSA is going to increase capital requirements, charges will have to go up. If a firm has Sipps which do not allow us to do that, then we will be reluctant to buy them.”
Dentons director of technical services Martin Tilley says: “If we are going to increase fees, we have to give our clients six months’ notice, which is quite a long time. If a Sipp provider is looking to sell up, that is the kind of thing that might put off a potential buyer.”