Falling transfer flows, regulatory jitters and fears over insistent clients are reshaping the Sipp market, our survey reveals
Sipp providers have tightened up their defined benefit transfer processes, a Money Marketing survey suggests, and are turning away some business as consumer appetite also cools.
Data suggests that DB transfers have started to die down from market highs in 2017, which concluded on a sombre note with the British Steel Pension Scheme debacle.
In April, Quilter published results that revealed its DB to defined contribution sales dropped by two thirds in the first quarter of 2019.
In the same month, AJ Bell also reported DB inflows were £300m down on the quarter – a drop of more than 50 per cent – compared with the same period last year.
But other figures suggest that the destination of member transfers remains much the same.
Last week, consultancy XPS Pensions Group published its second annual survey on member outcomes under pension freedom and choice.
This showed little change or variety in the destination for transfers, with 99 per cent of members moving to a Sipp.
That 99 per cent figure is split between 90 per cent going to a platform Sipp and 9 per cent going to a full Sipp.
In the 2018 survey, 86 per cent of members went to a platform Sipp and 9 per cent went to a full Sipp.
Both providers and advisers are growing cautious on transfers
From the platform side, I’m not seeing too much resistance. But if you are talking about your main Sipp providers, there is such scrutiny on them, with the capital adequacy increases, court and FOS rulings which held them accountable, I think that would have scared a lot of them, if I’m honest.
A lot of this is aligned with the FCA’s questions and PI insurance, because we know what that’s like at the moment.
Some firms can’t do any more because there are only so many brokers and insurers to cover the market. Some can’t get cover even though they are a professional business. Sipp providers will be getting the same questions asked of them as advisers are.
If they are scared of insistent clients, it’s because they think it could come back on them.
Advice comes back to the planner, rather than the Sipp provider, but the due diligence requirements still have them running cautious.
We have seen a dip in the DB work coming through from advisers, so I think the figures are reflective of the market as a whole.
I don’t think that’s necessarily because firms aren’t looking for it; it’s just that the influx has already come through.
Mel Holman is director of Compliance and Training Solutions
The research notes members that choose more expensive vehicles over lower-cost alternatives could run out of money seven years earlier if 25 per cent tax-free cash is taken and they draw an annual income of £12,000.
Furthermore, it shows members could receive £3,200 less each year in retirement income over their expected lifetime, leave £400,000 less of inheritance at the end of their expected lifetime and receive £5,000 less a year in annuity income at age 75.
To see how Sipp providers are reacting to this reduced level of DB transfer volumes, and the potential pitfalls of bad decisions, Money Marketing sent a survey to nine major Sipp providers.
The survey was sent to Curtis Banks, Talbot and Muir, Barnett Waddingham, JLT Group, James Hay, Hargreaves Lansdown, Dentons, Embark Group, and Intelligent Money. The questions in the survey centred on the processes Sipp providers have adopted when it comes to DB transfer business and how levels of business are changing.
As well as asking about flows over the past three years, it also asked what proportion came from the firms’ principal introducers compared with other sources, and if the Sipp provider accepted insistent client transfers – those who want to transact against recommendation.
Respondents were also asked about what proportion of DB transfer flows went into in-house funds and what proportion came from their own advisers if they ran a vertically integrated model.
Director, Hunter Aitkenhead and Walker
What has had more of an impact in falling DB transfer flows: adviser caution or providers tightening processes? I think it was a little from column A, a little from column B and a little from column C. Column C is that there was a pent-up demand, and there was a zeitgeist that has now mostly run its course.
Managing director, Henwood Court
Isn’t it natural for the flow to slow as many people who wanted to do a DB transfer have done so? Adviser caution should be natural, but if it was right for the client two years ago, what has changed other than adviser worries about the impact on PI insurance?
Picking up on processes
Of the few providers that have revealed figures for DB transfer flows, Standard Life was one that noted inflows had more than tripled to £900m at the halfway point of 2017. But providers have sounded a more cautious note on transfers recently, as attention has continued to focus on Sipps and high-risk investments in particular.
Five directors and three advice firms were issued with fines by the FCA earlier this month over transfers that it considered to be inappropriate, but Sipp operators have also been watching court action over a Financial Ombudsman Service decision against provider Berkeley Burke that went against the firm late last year.
Some claim the ruling establishes a clear mandate for Sipp providers to take responsibility over the vetting of unregulated investments for clients.
It is not just direct-to-consumer platforms and providers like Hargreaves Lansdown that have taken measures such as refusing business from insistent clients or those without advice, but advised ones too. Intelligent Money decided to stop accepting DB transfer business in March after a letter from the FCA reminded Sipp providers of their responsibilities when it came to receiving funds. Two others – Westerby Trustee Services and DP Pensions – followed in quick succession in the ensuing months.
This is despite the FCA clarifying after its Dear CEO letter to providers that, as opposed to how some firms read it, its statement of their responsibilities did not entail that they would be on the hook for the suitability of any advice given.
Money Marketing’s key DB transfer questions to Sipp providers
1. What volume of DB transfer flows have you received by quarter over the past three years?
2. Over the past three years, what proportion of total flows have come from DB transfers?
3. What proportion of DB transfer flows came from your primary introducer compared with other sources?
4. Do you accept insistent client transfers?
5. What proportion of DB transfer flows went into in-house funds (if applicable)?
6. What proportion of DB transfer flows came from your own advisers (if applicable)?
In a message to clients, Westerby said: “The board of Westerby has given this due consideration and until we are certain of the implications that this may have for Westerby, we will not be able to accept any future DB transfers.”
Intelligent Money chief executive Julian Penniston-Hill says the firm has agency terms with more than 1,000 advice firms, but does not own its own advisers.
Around 1 per cent of the agency advisers have permissions to conduct DB transfers.
In addition to no longer accepting any DB transfers, he notes the firm has never accepted insistent clients.
Last May, James Hay blamed a slowdown in DB transfers for a drop in new client numbers in the opening quarter of 2018.
A James Hay spokeswoman says that over the past three years, on average, less than a third of the firm’s flows have come from DB transfers.
She says: “Clearly, this has reduced significantly in the past six to 12 months.”
The platform says it does not accept non-advised business, nor insistent clients.
Curtis Banks did not disclose the volume of DB transfers it has received, but says that over the past few years, these have amounted to 7.6 per cent of all transfers by number.
It has also decided not to accept insistent client transfers, or offer its own funds or advice.
The remaining providers did not respond to our requests for information by the time of publication.
A number of advisers, including Penney Ruddy & Winter director David Penney, have pointed to professional indemnity insurance as a further reason for the drop-off in DB transfer flows. DB pensions expert Nic Millar says that she has not noticed member requests slowing. However, she says that while larger advice firms have been carrying on with business as usual, smaller firms have struggled to cope with both demand and the weight of PI costs.
Others point to reducing appetite overall from consumers as a reason for the drop in flows. Bramley Financial Planning adviser Rupert Miller says: “The demand is a lot lower; it is not just advisers saying no.”
Wingate’s Alistair Cunningham agrees. “I think most people have realised that most people should never have transferred,” he says. Cunningham notes that transfer values were also elevated previously, and other pensions experts have said that they have become less generous since due to movements in gilt yields, potentially putting new clients off.
Hamnett financial planner Jonathan Rowley says his business also expects smaller flows from now on, since transfers were initially higher when the pension freedoms came in due to “pent-up demand”.