Commentators, regulators and even the industry itself have all struggled to split the SIPP market into neatly labelled boxes to highlight the wide range of products under the SIPP moniker.
A good friend of mine managed to list 14 different types of SIPP product once. That's too many, but Ian Smith of Central Financial Planners suggested in in the trade press recently that a three-way split until the catchy premise of "three F's" – Full SIPP, Funds SIPP and Fake SIPP. The latter name reflecting those SIPPs that lend their heritage more to personal pension plans (i.e. PPP plus) than pre A-Day self-invested pensions (i.e. SIPP minus).
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Leaving aside whether these are fair descriptions, if there is to be any different treatment of those SIPP categories by, for example, the FCA, there needs to be an objective test for determining which category a SIPP falls. Without this, providers could place the SIPP product in the category that suits probably with some minor tweaking for marketing or regulatory reasons.
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A simple test could be whether a SIPP is trust-based or contract-based, and then within those two broad categories you could of course divide the market into further segments (cash only, single investment only, funds only, standalone plan, full range, group SIPP) and soon get towards the fourteen types referred to above.
Going back to the three F's, there is serious potential for an unwanted fourth F – the Failed SIPP.
I see three challenges for SIPP operators this year: systems and controls, raising finance and dealing with underlying investments.
The third thematic review, concentrating on systems and controls, is due to complete. Improving systems and controls takes time and money and there is usually no quick fix.
The capital adequacy rules are expected around the time of the thematic review results in June/July. New Model Adviser reported last week that commercial property might no longer be treated as a non-standard asset, but we could still expect significant increases in financial resources required to operate a SIPP business and the appetite for consolidation may abate month-by-month.
Concerns about SIPP investments probably peaked in 2011 and investors were often attracted by guaranteed returns for the first few years. 2014 could be the year in which those punters can see what their investment is worth once that guarantee falls away.
During this particularly challenging time, the whole industry should be hoping that we do not need the fourth category of SIPP. Having failed SIPPs would tarnish the industry but thankfully I have spotted a glimpse that the FCA might be working to avoid this situation too.
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It was also reported in the trade press that the FCA is contacting some providers to restrict their investment choice available under their SIPP e.g. to rule out UCIS, unquoted shares, etc. Whilst this might be read as the regulator interfering with consumer choice, I see it more as the regulator working with these SIPP providers to help them navigate through areas of concern to the regulator, rather than pulling the rug and leaving consumers in limbo.
The FCA need to adopt this "working with" approach rather than a "working against" approach if the application of a higher capital adequacy is to be a success with as little disruption to consumers as possible.
Andrew Roberts, Partner, Barnett Waddingham LLP
@andrewddroberts
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