SIPP market review and update
29 April 2021
At Defaqto, we do not tend to deal with speculation – what we talk about we back up with facts and data that comes from our vast product feature database powering our adviser tools.
It is for this reason, that we approached the oft-quoted predictions and indeed statements that the SIPP market would or has contracted over the latter part of the previous decade with some scepticism.
The bottom line was our data did not back it up.
The capital adequacy rules that the FCA laid out in 2014 and the ongoing cases brought against some providers with regards to due diligence on non-standard investments and unregulated intermediaries led to much of the speculation.
On 1 April 2013, there were 124 SIPPs from 82 providers in our database whilst six years later on the same date in 2019, there were 136 SIPPs from 84 providers.
Hardly a decline.
It was only really in 2020, that we began to see shrinkage in numbers when on 1 April 2020 there were 79 providers with 129 SIPPs and a year later 122 SIPPs from 74 providers, the lowest number of providers since April 2012.
However, Defaqto’s data shows that despite this, there hasn’t been all that much movement in actual numbers – at least until more recently.
The key reason for this contraction in the market has been because merger and acquisition activity that took place before 2020 has now begun to show its impact.
Curtis Banks and Embark have been at the forefront of this but other providers too – Hartley Pensions and Mattioli Woods amongst them - have chosen to take advantage of opportunities to grow their client base.
However, up until quite recently, we saw that despite having new parents, established names such as Hornbuckle; Rowanmoor and Suffolk Life remained in the market under their existing brand names.
In fact, there was steady growth in numbers over many years rather than a marked decline.
This has changed over the course of the last 24 months, perhaps as the realities of being a SIPP provider in this market, and the heavy burdens it now brings began to sink in.
Reasons for the changes
It is not unfair to say that when a company is taken over in any market, that there is concern over the future of that company whether that be a shrinking high street presence or the ingredients of their chocolate eggs.
SIPPs are no different. Advisers will have been monitoring this M & A activity with interest, particularly concerned about their clients who have SIPPs with providers who have been taken over and what this will mean for the ongoing service they and their client can receive, as well as the potential work coming their way if a transfer out of some kind is needed.
Providers who find themselves in possession of new SIPP clients from their takeovers will have carried out the necessary due diligence checks prior to purchase, of course, but it takes time to understand the client base and the way another office works before making changes.
There are also the potential extra costs driven by, amongst other things, changing or adapting the underlying technology of one’s new acquisition. So, it is understandable that these providers, in some cases, kept their powder dry before making wholesale changes.
Whatever the reasons, it meant we saw a slow change in the numbers in the market as brands remained available in the same way as they had been since their own launch, at least in most part.
Yet, as the statistics bear out, this began to change last year.
Alliance Trust; EBS Pensions and Rowanmoor products were all closed to new business following their sale to Embark during 2020, whilst the Zurich Intermediary platform that also went to Embark undertook some feature changes and is now Advance by Embark.
We have seen other rebrands as well – Xafinity to XPS; Momentum Pensions to iPension and Carey Pensions to Options Pensions.
Further back and 2019 arguably saw the most amount of change, Hornbuckle was closed to new business and Liberty SIPP rebranded following their takeover by Embark. GPC SIPP also closed following their sale to Hartley Pensions.
Talbot and Muir acquired The Pensions Partnership which led to the latter’s product closing. Talbot and Muir themselves have since been purchased by Curtis Banks though they remain available and open to new business in their own right.
At the same time, Curtis Banks announced an intended purchase of the SIPP technology provider Dunstan Thomas which completed in the Summer of 2020 – the impacts of this on the market will be interesting in their own right of course.
Suffolk Life also remained under their own brand after their 2016 acquisition by Curtis Banks but with the closure of their and Curtis Bank’s legacy SIPP saw a new product called Your FutureSIPP launch under the Curtis Banks name.
Also in 2019, Astute Trustees was closed following a sale to YorSIPP; as was MC Trustees following a sale to Mattioli Woods and Wensley Mackay who were originally sold to Praemium in 2016 closed their product.
We have also seen quite a lot of activity in the platform space over the last year or so which has not yet had a direct impact on the SIPPs we show but which is worth noting all the same.
It seems that private equity has a keen interest in platforms as we have seen James Hay, Nucleus; Novia; Parmenion and Wealthtime sold in this way - indeed some to the same one.
M&G purchased the Ascentric platform from Royal London whilst LV= on the mutual side have also been sold to private equity, a deal with Bain Capital is expected to complete later in 2021.
Dealing with regulation
When there is a key regulation change or a big announcement in the industry, there is often a need for immediate reaction – certainly in today’s world – but our experience tells us that in some cases it could be some time, even years before changes are seen.
Carey Pensions originally won a much-publicised High Court case, the verdict of which arrived in May 2020 following two years of deliberation. The case centred around a client transferring their pension to Careys from an unregulated introducer and will have been watched eagerly by SIPP providers and advisers alike. However, in April 2021, they lost a Court of Appeal decision in favour of the claimant. SIPP operators looking at the original decision as a point of reference will have had to row back and change course in light of this new development.
Berkeley Burke who closed their SIPP some time ago and in 2019 sold their administration arm to Hartley Pensions, had been locked in a case of their own which originated from a Financial Ombudsman Service decision.
This, in particular, was enough for the FCA to issue a ‘Dear CEO’ letter to providers at the end of 2018 reminding them of their due diligence responsibilities when accepting investments into their client’s SIPP and this, coupled with the capital adequacy requirements bought in from 2014 on non-standard assets held, may well have sped up the activity we have seen.
One area that we have definitely seen impacted by PS14/12, ‘A new capital framework for SIPP operators’, is a willingness to accept non-standard assets as an investment.
Since 2014, after guidance came in, there has been a marked decline in the percentage of providers willing to facilitate these investments. For example, only around 20% of products will now accept unlisted equities down from over 50% in 2012.
Now, there is no suggestion that non-standard assets are ‘bad’ but the obvious conclusion to draw is that providers are simply not prepared to leave themselves open to claims and do not have the appetite to carry out the level of due diligence required to make these assets available.
An adviser must always do their own research and find enough comfort themselves that adequate procedures are in place, but you may consider those providers still making their products available for these asset types are those who are confident they have implemented robust due diligence processes.
Impact on cost
When a market begins to shrink, there are naturally concerns about competition and the adverse impact this may have on customers.
For the fewer providers which facilitate non-standard assets, the extra due diligence work carried out means more administration meaning they require more resource which ultimately can lead to higher costs to the client.
It would seem though that these concerns are not altogether bearing fruit in the SIPP space.
Typically, SIPPs tend to charge a fixed monetary figure, however life offices or platform-based SIPPs often use basis points of the client’s investment to apply their charge and they are not included in the table above. There has been a slight increase since 2013 with an average maximum cost of 0.16%.
Arguments can be made on charging structures. Obviously, there are other fees to consider such as transfers and transaction costs and these figures are only the very maximum a provider could make and in reality, they may not be triggered by a typical client. There are also additional costs that are contingent on what the client is looking to do, such as purchase property.
Perhaps the lower fees are actually due to the number of providers not offering non-standard assets, the resources needed for due diligence having thus fallen.
In many ways, in terms of numbers, the market is very similar to nearly a decade ago but dig beneath the surface and we can see trends and changes, even though they are slow.
As you would expect providers are coy about their future acquisition plans, so it is hard to know if we have now reached the normal order of things or if it will shrink further.
Any dwindling in numbers could be made up for by an increase in digital wealth providers beginning to offer pensions – Moneybox is a recent addition to our SIPP database for example.
These products and the consumer products we show tend to offer a restricted number of investment types, so we do not envisage the non-standard asset numbers will increase.
Only time will tell what comes next and we await with interest what it might be.