The new capital adequacy requirements for Sipp operators finally became effective from the beginning of this month. When the FCA’s thematic review and capital adequacy regime was first announced, many commentators predicted a run of consolidation in the Sipp operator marketplace. Since then, a number of firms of all sizes have indeed changed hands.
It was also widely suggested that by the time the new requirements became effective, the firms that had met the benchmark could be regarded as a safe pair of hands and would likely be committed to the market for the longer term.
However, two acquisitions in the first week post-implementation would seem to prove this theory flawed. We have learnt that Mattioli Woods has acquired the business of long-term Sipp and SSAS operator MC Trustees Ltd and that investment management firm Praemium has agreed to acquire the business of Cumbrian based Sipp and SSAS operator Wensley Mackay.
The fact that these deals took place after the 1 September deadline is interesting, since the acquired firms must already have met or been working towards meeting the minimum capital requirements. It follows then that meeting the benchmark is indeed only the lowest hurdle that needs to be jumped.
An ongoing business will need capital over and above the minimums to develop. Resourcing new IT systems, software upgrades, staff and marketing will all have a draw on cash, and failing to maintain a market share and new business will see operators become targets for acquisition.
Whether this continued consolidation is in the consumers’ best interest is a debatable point. Larger firms might be able to offer efficiencies through scale and possibly pricing but they often lack the personal service the smaller and medium sized players can provide. By their very nature the behemoth’s offering tends to be more vanilla in features, meaning more clients can be handled in a standardised manner.
Other firms have increased fees citing the additional regulatory burden of processes to meet the new reporting requirements. This may also trigger a wave, not of provider consolidation, but of movement between Sipp operators of individual or IFA books of clients.
These issues have and will continue to a be problem for advisers who wish to ensure their current Sipp clients are with the right provider and that new ones can be similarly placed. Simply existing post-deadline for new capital requirements is no measure of the long-term nature of the business.
Advisers will be aware of the complexity and cost to transfer between Sipp operators, particularly where commercial property or other non standard investments are held.
It would seem that some of the acquisitive Sipp operators are getting larger, while the number of competitors in the market – and therefore consumer choice – is getting smaller.
Martin Tilley is director of technical services at Dentons Pension Management