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Class struggle

A couple of weeks ago, I received an email from Tom McPhail, head of pensions research at Hargreaves Lansdown, drawing my attention to an article in Money Marketing in which he was reported as “hitting back” at commentators – myself included – who have expressed fears that consumers could end up misbuying Sipps on an execution-only basis.

I do feel Tom’s comments need an answer, all the more so since last week it was announced that the personal finance website Motley Fool is to offer its own direct Sipp administered by AJ Bell.

Motley Fool senior product manager Paul Warburton said: “We believe there are huge opportunities in this arena.” And indeed there are. As I noted in my original comment some six weeks ago, the Sipp market grew by a staggering 1,000 per cent between 2004 and 2005 alone.

Tom’s response to the Motley Fool Sipp launch was that “this reinforces the expectation that Sipps are becoming the dominant life form in the pension landscape. It is an example of how new distribution arrangements are coming about to take advantage of branding and marketing in an attempt to access new markets.”

I agree with that analysis. My worry is that what we are beginning to see is the development of a market for Sipps that, to my mind, is completely unsuited for this kind of product.

A few weeks ago in the “hitting back” article, Tom was reported as saying that “Hargreaves Lansdown gives more ongoing support to its execution-only Sipp customers than some IFA firms do to fully-advised clients”.

This is probably true also, although it begs a number of questions, such as whether that support involves “advice” or simply administration, or whether you can ever justify what you do by reference to someone else who, if Tom is right, is plainly offering scandalous service to his clients.

But anyway, back to Tom. He continued: “Investors are free to buy and sell shares without advice, to invest in emerging markets through a personal pension without advice and to take on crippling levels of personal debt without advice.”

Again, I broadly agree. My concern is this. I believe there is different class of pensions investor now entering the market. They know very little about the stockmarket as a whole, their pensions have suffered and they do not seem to get any clear answer from their advisers as to why that is. They do not understand why it is that, given how the stock-market has performed in the past three or four years, their pensions have not matched that performance.

Moreover, they find it almost impossible to work out what is being taken from them in charges or how investment decisions are being made on their behalf.

Then, for all sorts of reasons, many of which have been discussed already, they hear about Sipps. These products are much more transparent, or so they believe. They give them much more choice and they can make decisions about their money in a way they were previously unable to.

The problem is that by setting up their own Sipp, they are in danger of making a serious mess of their retirement planning.

A quick example from the past week on my website’s forums. One 22-year-old contributor asked whether he ought to be joining his company’s group pension scheme, presumably a stakeholder one, given the provider. “Mmm, don’t know,” I said. “It partly depends on whether your employer is actually placing its own money into the scheme. Maybe you should be speaking to an IFA.”

Another contributor replied: “You don’t want to do that. I have set up a Hargreaves Lansdown Sipp and I now know where my money is invested.” Now, he may be the world’s next Warren Buffett, but somehow I did not get that feeling.

Another example from last week. A neighbour tells me that he has been neglecting his pension planning. But now he has set up an execution-only Sipp – not with Hargreaves Lansdown, I must stress – and has decided to divert all of his money into China, because it is a “fast-growing economy”.

I suspect these examples are not random or isolated. On the contrary, a pattern is emerging that has serious implications for future generations of retirees.

Two weeks ago, Tom asked: “Can it be argued that Sipps present some extreme risk which means that while some financial products can be bought without advice, Sipps should not be? The answer is definitely not.”

I understand Tom’s view and personally do not have a clear answer to that question. Equally, I don’t have his certainty. My gut feeling is that there will be many execution-only Sipp investors who will live to regret it.

Nic Cicutti is the editor of He can be contacted at


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