Sipp providers are likely to raise their fees in 2015 as they struggle with the rising cost of due diligence and new capital requirements, experts are warning.
Providers have come under pressure from the FCA over safeguarding clients from high risk investments. The third thematic review of the Sipp market, published in the summer, found a “significant number” of providers failing to carry out appropriate due diligence on non-standard investments.
The regulator’s capital adequacy rules will also force firms to maintain greater capital buffers against assets. Though the requirements were watered down in August, the industry faces significant new costs from September 2016.
Dentons technical services director Martin Tilley says the tougher attitude of the regulator will force providers to pass costs on to customers.
He says: “The market has been buoyed by a lot of unregulated investments in the past, but because of the change in attitudes to these they are no longer adding to the numbers. I’d expect new Sipps going forward will have proper due diligenced assets in them.
“But because of the extra costs and responsibilities of the Sipp providers who are offering these with additional due diligence in, you’ll see a lot of the Sipp providers next year begin to role out new propositions with slightly higher fees.
“As a result, as fees for certain investments go up, you might find people who were marginal about using Sipps in the first place put off, which might curb the levels of new Sipps a bit.”
Suffolk Life head of marketing and proposition Greg Kingston agrees, saying it is bespoke providers, rather than platform operators, who are under pressure.
He says: “Operating a bespoke or complex Sipp became significantly more expensive in 2014.”
However, Talbot & Muir head of technical support Claire Trott says price increases “shouldn’t be necessary if they have been running efficiently already.”
“There will be a need to change systems and processes in the first quarter to deal with the reforms but given we have had some time to plan and the fact that it isn’t such a major change for some Sipp providers such as ourselves we feel it is likely to be simple to deal with the changes so not so costly.”