In its review, which began at the end of 2008 and looked at around 60 small Sipp operators, the FSA found that some Sipp operators wrongly believed the responsibility for the quality of the Sipp business they administer lies solely with advisers.
For example, some Sipp operators have not been checking that advisers who introduce clients are FSA-authorised and have the appropriate permissions.
The regulator also uncovered problems with firms’ systems and controls, including their training and competence regime, the accuracy and transparency of illustrations and the disclosure of charges.
The report states: “Of particular concern were firms whose systems and controls were weak and inadequate to the extent that they had not identified obvious potential instances of poor advice and/or financial crime.
“We may take enforcement action against Sipp operators who do not safeguard their customers’ interests in this respect.”
And, as mentioned, it flagged up problems where operators were unable to demonstrate they are treating their customers fairly in administering their Sipp.
The FSA also criticised firms for not adequately disclosing that they were retaining a proportion of the interest payable to members on bank accounts and has asked firms to review their wake-up packs to ensure equal prominence is given both to annuities and income drawdown.
It has written to all relevant firms, explaining they are required to review their business in the light of its findings, and has insisted it will continue to monitor firms, considering regulatory action if firms fail to address issues.
The report does not throw up many surprises for Suffolk Life marketing director John Moret.
He says: “Fifty of the 70-odd Sipp operators around are running Sipp portfolios of less than 2,000 contracts. I have always regarded that as the rough threshold indicator for long-term viability of a Sipp provider.
“Many smaller Sipp providers started out as SSAS administrators or trustees and there is a world of difference between running a small number of Ssas’ – which are not subject to the same FSA regulatory over head as Sipps – and a Sipp portfolio. This is where the problems lie.”
He expects the market to consolidate as smaller players find meeting the FSA’s tough regulatory requirements increasingly unviable.
Moret says: “There will of course always be a place for the true bespoke Sipp but I believe the regulatory overhead is becoming so great that many of the smaller operators will struggle to meet the FSAs requirements.
“I also believe that the three prerequisites for succeeding as a Sipp operator are experienced management, a scaleable IT platform and access to capital or financial strength. I think many of the small providers would fall down on one or more of these criteria and I think this is borne out by the comments in the FSA’s review.
“I remain convinced this will lead to consolidation of providers over time. One can debate whether this is a good thing. However the messages in the FSAs paper are very clear and Sipp operators ignore them at their peril.”
But pensions consultant Mattioli Woods believes larger firms will not come out of this review unscathed, particularly the point about sharing responsibility for suitability with advisers.
Marketing and sales director Murray Smith says: “It is hard to criticise the FSA’s view that Sipp operators should take an element of responsibility to ensure appropriate distribution of their products.
“This could leave larger firms in particular exposed to the fall-out from misselling, particularly where Sipp growth has been achieved because Sipps are ‘flavour of the month’.”
What are your thoughts on the findings of the review? Are smaller providers struggling under the recently imposed red-tape? Will it prompt consolidation in the Sipp sector and would this be a positive or negative change?
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