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Sipp providers attack FSA over disclosure plans

FSA Front 480

Sipp provider trade body Amps has launched a scathing attack on the FSA and warns proposed changes to provider illustrations will increase costs and create confusion for consumers.

The regulator’s final proposals for improved Sipp disclosure, published in November, will require all personal pension schemes to produce key features illustrations, effect of charges and reduction-in-yield information.

Sipp operators will also need to spell out any bank interest or commission they retain on members’ funds. The rules are due to come into force on 6 April.

In a letter to the FSA dated 1 February, seen by Money Marketing, Amps chairman Andrew Roberts warns the new requirements will drive up costs for providers and, ultimately, consumers. He estimates the cost of implementing the changes will be £2.8m, with additional ongoing costs of £2.7m a year.

Roberts also raises concerns plans to allow Sipp operators to choose “reasonable” projection rates for assets which are hard to value will create “spurious levels of accuracy” which investors will be required to interpret.

He says this could allow providers to “manipulate” illustrations to their advantage.

Roberts ends by criticising the FSA for failing to listen to the industry during the consultation process.

He says: “At the liaison meeting [with the FSA] we were informed that the consultation process is not a democratic one.

“However, we would expect where the industry expresses such grave concerns about the impact on consumers that the FSA might take stock and engage with the industry to find a solution.”

Forty Two Wealth Management partner Alan Dick says: “It is vital that comparability between Sipps is improved. At the moment it is almost impossible to compare different products and in my view that has already resulted in huge amounts of misbuying.”

An FSA spokesman says: “We will be responding to this letter shortly.”

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Comments

There are 15 comments at the moment, we would love to hear your opinion too.

  1. Maybe they would get more respect if they didnt take 3 months to respond to a paper published in November….

  2. Neither AMPS nor the FSA come out of this very well.
    Objecting to an FSA requirement for transparency isn’t, in the post RDR era, very professional but nor is the FSA’s unwillingness to provide standard growth assumption rates. Investors, as far as possible, shouldn’t need to interpret what they’re given – reading it should be enough – transparent gobbledygook is still gobbledygook!

  3. The FSA uses consultation as a fig leaf for driving through its own agenda and it NEVER listens. The car crash that is RDR is a prime example.

    We have operated on an RDR friendly business model for 5 years foolishly until almost the last minute we thought that was OK. We are now having to re-sign every active investment client. 200 clients one hour advice one hour admin costed at £250 = Hidden RDR cost for us alone £50k. This on top of the costs of meeting exam standards etc etc if we are average and there are 5,000 firms then that’ £250m for IFAs alone.

    This pales into insignificance with costs of providers in rewriting every piece of remuneration and illustration software they have which runs into multi millions.

    I think Amps may have radically underestimated the costs involved.

  4. From my perspective I think the SIPP providers deserve a kicking over this. I have been asking AJ Bell for months (by phone and e-mail) how their charges will work now the platforms can presumably no longer subsidise their charges. No answer is forthcoming. In situations such as this you are therefore left to presume that some chicanery is afoot.

    Moreover when you also realise that many SIPPs are very fond of ensuring that they have a cash account that pays zilch interest to the client, that too leaves an unpleasant taste

  5. Whilst I’m all for simple transparency, some of the FSA comments about the ‘consultation is not a democratic process’ and the bit about ‘MIGHT engage with the industry where there are grave concerns….’ just go to show that their default position is one of stopping up their ears to the cries of their victims, whilst are we are waterboarded to submission.
    Good ‘ere isn’t it?

  6. To be clear, AMPS fully support transparency but think there is a better way (for consumers) than using illustrations.

  7. Why have a SIPP? What did you have it for – oh yes, a member directed pension plan to give you, the so called consumer and who is obviously too stupid to understand (reading between the lines from the FSA) what you’re doing, choice and flexibility where you invest your pensions savings. This really is a nonsense from the FSA – are illustrations REALLY going to make any difference? They simply are not on the same planet.
    AMPS also should step up to the plate to properly represent their members’ interests! Make it political! The FSA does not like receiving letters from MP’s.
    Why not transfer your SIPP into your own SSAS?
    Think about it.
    Have a good day.

  8. Hyman Wolanski (MD, Sippchoice) 5th February 2013 at 10:57 pm

    This article leads to the question of why the FSA bothers with consultation. Whilst they will, clearly, have their own views on key issues, what is the point of consultation if there is overwhelming industry objection to their proposals and they will not engage actively with the industry to try to work out a better way of achieving their objectives?

    As a SIPP operator, I am very keen on ensuring that prospective clients can properly understand, evaluate and compare SIPP charges and will support any proposals to achieve this. Regrettably, the FSA’s proposals will simply not achieve this and will actually make it even more difficult to compare SIPP charges. This, combined with the additional costs of producing these unhelpful and confusing illustrations, is the reason that there is such strong opposition to the FSA’s proposals.

  9. Unfortunately the FSA hasnt moved with the times.

    In the old days a contract had a charge which didnt change irrespective of the funds selected which meant that projections at least showed the impact of charges on the growth rates used.

    In the modern world the investor has the option of internal and external funds which carry different charges – so any projection is only relevant as long as no fund changes are made.

    So the question is – are projections still fit for purpos?

  10. I am with a well known broker and the founder has been softening up the clientèle in the newsletter recently about the effect of new regulations and charges. He makes the case for more transparency which in his mind is to show the effects of regulation as a separate charge on each contract note.

    No. I get an annual statement which shows everything I might want to know except how much the privilege of broking with his firm has cost me. What I want is a line item in the statement that shows the total cost of all charges/broker benefits accruing to him from my SIPP inc dealing commission, trailing commission, interest on cash and then expressed as so many £k/£100k invested. Just to be clear this would be about £3k/£100k.

    Now that is what I call transparency. What say you?

  11. Illustrations are pointless.

    What is required is a simple charging schedule detailing the charges applied by the fund/bank account/plan provider/adviser culminating in a reduction in yield on the investment.

    All schedules from all providers should then be in an industry standard format so that comparing and contrasting contracts can be done at a glance by all parties concerned.

    This would help eliminate the feelings of being ripped-off and clients may regain an element of confidence in our industry.

    Once again FSA demonstrating its inability to understand the industry it is supposed to be regulating.

  12. Hyman Wolanski (MD, Sippchoice) 6th February 2013 at 12:48 pm

    Richie is spot-on.

    Unfortunately, not all SIPPs have simple and straightforward charging schedules. For example, one large SIPP provider, that gleefully predicts the demise of most smaller SIPP operators, has a charging schedule that is impossible to comprehend. I pity the consumer if their prediction comes true and the only remaining SIPP providers are a small number of large institutional organisations.

  13. And the problem with this is?Oh yes I know ,some SIPP providers cannot do this or afford it/Well SIPP’s are now mainstream not niche investments for Property purchase and sharedealing and thats the privece the provider pays ,tough.IFA’s have a lot of regulation SIPP providers better get used to it or go out of business.

  14. The FSA is totally right on this one and their new proposed capital adequacy.

    SIPPs are now mainstream.

  15. I am in a SIPP with London and Colonial. The fund that I invested in went west and all of my money was lost( £84k).
    L &C have had little or nothing to do to administer my fund, but have still charged me £550 odd for the privilege!
    This is not fair. I have asked for a refund of those fees if they are not able to justify them.
    Transparency in fee charging is needed.

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