Although the platform policy paper dealt specifically with the platform industry, there is a natural read-across to Sipps and the potential implications are significant. Sipp providers will have to look at the sources of their revenue streams and Sipp pricing is likely to have to change as a result.
Some sources of revenue could disappear altogether and in any event much greater disclosure will be required. In addition, the increasingly complex pricing of many Sipps makes for a lack of transparency, which will sit poorly with the FSA’s approach to the RDR.
Some providers’ models work by supplementing the revenue generated from explicit admin fees with revenue (or revenue shares) from other sources. These keep headline fees down and in some cases may also allow for a simpler fee menu. They are increasingly easy to set up, mostly due to the rise of both investing on platform and its common alternative, outsourced discretionary fund managers. However, supplementary revenue from these sources sits poorly with the FSA’s approach to the RDR.
A revenue share from platforms based on the Sipp funds or assets under management on the platform is frequently used to offset the annual fee. This results in a lower flat annual fee or, perhaps, tiered annual fees (falling as percentage of revenue share increases). This would typically be only a partial offset, with the remaining revenue being used to boost the Sipp providers’ low margins.
However, it now seems this model, which seems similar to fund managers paying platforms for “shelf space”, will not be able to continue. The FSA may not apply the same rules but platforms will find it increasingly difficult to pay such revenues and Sipp providers can expect much more stringent disclosure requirements.
If a revenue share with a platform looks a grey area, pay to play fees on a provider’s panel look a rather clearer case of provider payments for shelf space and the FSA may take a tougher stance here.
Sipp providers have responded to the trend to outsource to a DFM by introducing lower-cost Sipps designed specifically for this purpose. Some allow access to a panel (with or without pay to play fees), others are tied to a specific DFM. In the latter example, the DFM will often subsidise or even pay in full Sipp fees, particularly set-up and annual fees.
A good case can be made that neither the Sipp providers nor the DFMs are setting their charges at a level commensurate with the DFM’s fee subsidy.
Nonetheless, the parallel with cash rebates is there and it will be interesting to see whether the FSA chooses to take action on this.