Revealed: The Sipp firms under pressure as capital deadline looms

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A worrying number of Sipp providers’ business models, including well-known firms, are unsustainable, new analysis has warned.

Research consultancy Finalytiq’s first review of the sustainability of the bespoke Sipp market, seen exclusively by Money Marketing, reveals Carey Pensions, @SIPP and London & Colonial are set to struggle.

All three Sipp operators were given the lowest rating for financial stability as the industry races towards the introduction of the FCA’s new capital adequacy rules, which come into force on 1 September.

In addition, Hornbuckle was rated C, the second-lowest grade, as was Barnett Waddingham, Liberty Sipp, Rowanmoor, MW Pensions, Momentum, and Morgan Lloyd.

AJ Bell, James Hay and Mattioli Woods came top of the pile, with Dentons, Talbot & Muir, Curtis Banks, Suffolk Life, and Xafinity securing ‘B’ rankings.

Finalytiq founder Abraham Okusanya says: “Given the impending changes in the Sipp market, assessing the financial stability of Sipp providers has never been more important in advisers’ due diligence processes, both to ensure the best outcomes for clients and to protect their own businesses.

“The FCA has been clear that advisers’ due-diligence process should separate facts from fiction. You can rely on facts from providers, but not opinion, that’s down to advisers’ professional judgement.”

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*N.b. Firms are grouped by grades, not by individual scores

The report highlights the ownership structure of some firms as a potential challenge to stability.

It says: “Many Sipp providers are owned by private individuals who themselves are approaching retirement. Sooner or later, these owners will want to cash in on their life’s work. This means a sale could be put on the cards and this could be potentially disruptive for advisers and for clients.

“There are few providers with an institutional ownership structure, which means they are often better capitalised and don’t have the same problem.”

The ratings take into account a range of factors, including profitability, margins, reserves, market share, and asset and revenue mix. Where providers did not provide data for a category, they received no score.

The report assesses 18 firms who responded, and notes the providers who failed to engage and were too small to be required to file accounts at Companies House. This included Berkeley Burke, JLT Premier Pensions and Yorsipp.

Apart from AJ Bell and James Hay, platform Sipps were excluded, as were insured schemes.

Money Minder Financial Services managing director Ray Black says: “Having gone through Sipp firms being sold on a few occasions, we’ve ended up with very large but not very personal Sipp providers. We’ve found the mergers and takovers have caused us quite a bit of grief. The administration is worse, you lose your personal contact and the client becomes a number.”

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After this article was published providers sent in their responses.

Amps says: “As the industry body for self directed pension schemes, including Sipps, we welcome independent research into the market place that helps, providers, advisers and clients.

“There has been a great deal of focus on the sector from the new capital adequacy requirements coming into force on 1 September to the increased scrutiny of retained interest rates.

“This leads advisers and their clients to undertake high levels of due diligence and to ensure that the provider they are looking at are well capitalised, committed to the Sipp market and able to provide the levels of service and technical support that they need.

“That is why a number of our members have raised concerns on the report by FinalytiQ, they don’t feel that there is adequate differentiation between the new capital adequacy rules and profitability/service.

“There was also a strong feeling that the report doesn’t compare like for like, as a number of the providers have different capital adequacy requirements, have provided their own data and there are concerns that the report is flawed.”

Carey Group chief executive Christine Hallett says: “For the record Carey Pensions UK is fully capitalised it meets the FCA requirements fully and will continue to do so on an ongoing basis and we are fully prepared for the September changes, so we have no pressure at all, I don’t need to be part of a survey for the industry to know this, it is a requirement for all Sipp regulated firms so in order to continue with the authorisations they must continue to comply, I will be amazed if anyone purchases this report which as I say provides no value at all to anyone.”

London & Colonial head of product Adam Wrench says: “The theory behind having this type of independent research is valid provided that it does what it says on the tin and provides all of the facts. London & Colonial did not provide any information to this research and as stated by this report ‘where providers did not provide did not provide data for a category, they received no score.’

“We are therefore not surprised to have received a “D” rating and presumably this is to encourage us to provide Finalytiq with the opportunity to sell the facts about our organisation to Financial Advisers for £2700 a firm.

“We applaud the business model of Finalytiq and fully support the need for financial advisers to be in possession of the facts. However, at London & Colonial we value and support our financial adviser clients more and will continue to provide them with the facts free of charge rather than providing them to Finalytiq to onward charge our clients.”

An @SIPP spokeswoman says: “Any insight into the Sipp market is to be applauded, but it is important that information is accurate. As we advised Finalytiq, ahead of publication, the data used to assess @SIPP’s financial strength and capital position is out of date and incomplete. It relates to an old entity which no longer exists. In common with most of the Sipp industry, we did not complete the questionnaire and therefore our rating could only be derived from very limited and historical information. Finalytiq’s findings are  not at all reflective of @SIPP current corporate structure and financial position”.

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