View more on these topics

David Fox: Collapsed Sipps and charging challenges

It seems hardly a week goes by without reading the depressing news of another Sipp provider failure. With that comes the possibility of additional claims to the Financial Ombudsman Service and claims on the Financial Services Compensation Scheme.

It may be only a minority of Sipp providers tarnishing the ‘Sipp brand’ at the expense of the well-run majority but, unsurprisingly, many advisers on various forums are expressing concern over the state of the Sipp market and the impact claims on the FSCS have on their own levies.

It seems an appropriate time to consider why some of these failures may have come about and how certain sectors of the industry could adapt to avoid continued high-profile failures.

First, there is the question of profitability of the provider. Sipp providers, like any business, ultimately need to make profits in order to survive long term. That may sound obvious but, sadly, profitability and Sipp providers do not always go hand in hand, as industry experience has shown.

However, profitability cannot be considered in isolation. As we have seen recently, a provider can encounter financial difficulty while, on the face of it, being profitable. It appears a lack of positive cashflow, and a very large exposure to distressed assets, can cause an eventual fall into administration. Logic would dictate the two are inextricably linked – illiquid and distressed assets can mean there is little or no cash within the Sipp with which to pay the provider’s administration fees. Longer term, that’s clearly an issue.

Industry’s challenge to join together and protect Sipps

So, why do Sipp providers allow themselves to get into this position?

It is hard to find a universal answer. There are likely to be differing reasons affecting each provider, but one aspect that has surprised me time and time again is the desire among some providers to offer the cheapest product on the market – often at an extremely low fixed fee – regardless of the amount of work required on a client’s Sipp in any given year. When I take my car to the garage for its scheduled services, it would be nice to say: ‘Please fix everything that’s needed for a set charge of £x.’ Of course, that is unrealistic and garage owners would go out of business if they offered such a facility.

I often question why Sipp administration services should be any different. Clearly, fixed-price car servicing does exist in the marketplace, but my point is that it will not cover anything beyond the items listed by the garage. Additional work needs to be paid for.

Back in our industry, a Sipp property purchase, for example, could be far more complicated than anticipated at outset and – unless there was sufficient margin within the provider’s fixed fee or there was an element of time-costed work – there is a good chance the provider would make little or no profit. We have to ask why that is the case and if it is a sustainable model.

Sipp providers can learn from costly mistakes made by their peers in recent years – by pricing their core administration work more appropriately and by being very careful about asset acceptance. While the latter appears to be largely under way within an already embattled industry, I’m not convinced about the former.

David Fox is director at Dentons Pension Management Limited



Five minutes with…Clive Waller

CWC Research managing director Clive Waller talks soft skills and what the sector may look like in 10 years time ahead of Money Marketing Interactive Harrogate.  Money Marketing: What soft skills are needed for a modern adviser and why? Waller: As more and more is carried out online, the need for great communication skills and […]


NHS pension reforms should inspire wider rethink experts say

The government should consider broader pension tax reforms on the back of its proposal to allow NHS doctors more flexibility about how they save, experts say. Earlier today HM Treasury announced it will review how the tapered annual allowance supports the delivery of public services such as the NHS. The government also said it will […]

Hot air balloons

Liontrust buys Neptune for £40m

Liontrust has agreed a deal to buy Neptune for up to £40m. The deal will see Liontrust acquire all of Neptune’s share capital, but it will also be taking on all of the fund management team at Neptune, who will move to Liontrust’s London offices. Current Neptune boss Robin Geffen is due to step down […]

Death benefits: our top 5 frequently asked questions

By Fiona Hanrahan – Senior Product Insight and Technical Support Analyst, Royal London We’re often asked about death benefits and thought we’d share our top five most frequently asked questions. 1. Who pays the lifetime allowance charge when an individual dies? If the individual dies with uncrystallised benefits, these are tested against their remaining lifetime allowance. […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm