Stephen McPhillips, technical sales director, Dentons Pension Management Limited, looks at the SIPP landscape and the effect for advice firms of SIPP providers going into administration.
As many paraplanners will know, a lot has been happening in the self invested personal pension (SIPP) market recently. Sadly, a lot of that activity has not been positive – for adviser firms and clients alike. Since I last wrote on the subject for Professional Paraplanner, we have seen further provider failures, and we are witnessing the difficult processes involved where a provider has failed but a willing buyer cannot be found for the failed provider’s book of business.
What has been happening?
In broad terms, a number of SIPP providers have failed in recent years because of the extent to which they have historically conducted due diligence on investments prior to accepting them into their books of business. A number of Financial Ombudsman Service (FOS) determinations have gone against those SIPP providers whose due diligence work was deemed to have been below an expected standard. Unable to meet the consequential redress requirements, a number of providers have gone into administration, leaving behind significant liabilities. In a number of cases, those liabilities have fallen upon the Financial Services Compensation Scheme (FSCS).
However, it’s not just lack of due diligence on investments by SIPP providers that has caused problems. A large, and very well known SIPP provider found itself in administration in the summer of 2022 after a FOS test case made a determination against it. That test case revolved around a perceived lack of due diligence by the provider on a regulated introducer of business to it. With the test case having gone against it, the knock-on effect meant that the directors of the business felt that it was unable to meet the likely financial redress consequences. Luckily, a buyer was found for the book of SIPP business in that case, meaning that there should, hopefully, be some continuity of service for adviser firms and their clients.
When things go very badly
Unfortunately, recent history has shown us that there isn’t always a buyer waiting in the wings to buy a failed provider’s book of business, but why would that be the case? Often, an acquirer can buy a book of business without buying any of the actual business’s liabilities. That might seem attractive and it has indeed formed the operating model of several providers in the past.
So, why would an acquirer not wish to buy a so called “distressed” book of business? Well, if that book of business is such that it is too complex, fragmented and messy to deal with, it stands to reason that acquiring it would not make business sense (regardless of any recurring fee income that it generates). Consolidation for consolidation’s sake has proven to be an issue for some providers.
Where no buyer comes forward, something has to happen to deal with the failed provider’s SIPP clients. As we are seeing currently, that might involve an application to the courts to ratify a process for winding-up the business, and one which might impact upon the members’ SIPP fund values as a result.
The fall-out
As a result of all of this, adviser firms and clients are naturally worried about those failed/recently acquired providers. Not surprisingly, there is a desire to extricate clients from providers whose future is uncertain, or whose service levels may have changed dramatically following an acquisition out of administration.
There is hope on the horizon
The good news for paraplanners and advisers is that not all providers have shared the same business models over the years and, hence, not all are afflicted by the issues outlined above. A good quality provider will wish to undertake due diligence on any investments it is being asked to take in from another provider because it cannot be assumed that the investment is one that could/should happily sit inside a SIPP.
That due diligence should also highlight whether or not the asset is actually capable of being re-registered from one provider to another; recent experience has shown that commercial property, for example, might be held in the transferring scheme in a particularly complex structure. Although not insurmountable, challenges like these may need to be overcome before a client can transfer across to a new and willing provider.
