Martin Tilley: Passing the buck on Sipp cap ad charges

Martin Tilley

We have seen an increasing number of adviser enquiries that appear to have been triggered by the introduction of the FCA’s capital adequacy regime, which came into forcelast week.

A number of these calls are due to advisers looking for new Sipp providers to partner with. Advisers are assessing the propositions available, and the fees associated with them, with a view to moving current Sipp clients.

Transfers between Sipp providers are not uncommon. Advisers cite ease of dealing, poor levels of administration service and errors and also turnaround times as major issues. But it is acceptance of assets and fee increases/disputes that are causing this recent spate of enquiries.

It would appear that the flurry of one-off charges introduced by some firms as a way of passing on the costs associated with the additional regulatory responsibilities and reporting is causing huge concern for advisers. So, what has caused these charges and why may they not just be one-offs?

About four years ago, as a result of one or two high-profile Sipp provider failures, the regulator saw fit to consult on and implement changes in the Sipp provider capital adequacy regime. The method of calculating, monitoring and reporting on this is derived from a formula in which not only the number of Sipps is required, but a detailed knowledge of the assets that constitute the Sipp book and their current values.

There was a lot of industry debate about whether certain assets were standard or non-standard. This has required, in most circumstances, each Sipp provider to undergo a large data-cleansing exercise to categorise the assets within each Sipp  between what were to be considered as standard or non-standard. This often required collecting more data than had been obtained originally and rewriting systems with additional fields not previously deemed necessary, which then had to be accurately populated. There is also the need to continue to value these assets on a regular basis for the purposes of regulatory reporting.

WEB_080916_MM_Horses

All of this came at a time of increased data requests from the regulator into matters such as source of business, numbers of defined benefit transfers and number of new flexi access clients, the last of these broken down into value of fund size categories.

For these combined reasons, some firms that have not been able to absorb these initial resource costs, related to the capital requirements, have felt it necessary to pass these on to the client directly. Others have given notice that they are increasing fees, which effectively will recoup these costs over time, while also contributing towards the increased costs of meeting and maintaining the new capital adequacy requirements going forward.

In an effort to control future capital adequacy requirements, some firms have also changed their propositions in respect of the non-standard assets they accept.

It has become clear that the regulatory burden in making sure acceptance of these assets is controlled by a robust due diligence process has made continuing in the market uneconomical for some. Each new Sipp that holds such non-standard assets will also have a bearing on the future capital adequacy of the business.

Martin Tilley is director of technical services at Dentons Pension Management