Ray Chinn Head of pensions LV=
The saying goes that there is no such thing as a free lunch so does the same apply to Sipps? Apparently not. As Sipps become the pension product of choice, we are now seeing the arrival of the “low-cost” Sipp, with the “free Sipp” probably not too far behind.
Having spent a few years in marketing roles, I understand the importance of “stand out” and can even live with a little spin but I am concerned that this preoccupation with making things cheap is devaluing Sipps.
Worse still, I believe that there is potential for these products to be misleading customers.
Not because they do not offer the widest possible investment choice so should not be classified as a Sipp but because they are making customers believe that running a Sipp is a simple business – so simple, in fact, that it can be achieved at very little cost.
The truth, if my own experience in the industry is anything to go by, is somewhat different. This is view is backed to a large extent by the recent FSA review of small Sipp operators.
In this review, the FSA were keen to express the need for Sipp operators to comply with high standards for core activities which are monitored and measured – including such areas as member account reconciliation, valuations, anti-money laundering compliance and business continuity among other things. All of this for next to no cost – I don’t think so!
Even allowing for technology efficiencies and economies of scale (ignoring the fact that many Sipp providers are sub scale), I still struggle with the concept of the low cost Sipp.
So, how are these products springing up? This is where the spin comes in. Far from being low-cost, these Sipps are using “kickbacks” from bank accounts or investment manager rebates to supplement their income and hoodwink the customer into thinking that you can run a Sipp for just north of two shillings and sixpence.
The sooner Sipp providers come clean about the true level of Sipp costs and stop hiding behind these other sources of income to cover costs, the better the outcomes will be for everyone.
True transparency over costs will help customers make better decisions over whether they are getting value for the services they are buying – whether these are admin services, investment management or advice.