There is growing concern that continuous regulatory change, including the FSA’s recent proposals to increase the amount of capital SIPP (Self-Invested Personal Pension) providers must hold, will force large numbers out of business.
Commenting in the latest Money Management SIPP survey, one leading SIPP provider has said that up to 80% of SIPP providers could disappear through a combination of mergers, takeovers or exists from the market.
Speaking to FT Adviser, Chris Smeanton, Head of Product Development at James Hay, said: “With the constant and relentless wave of regulatory change and escalating requirements for increasing levels of capital, staff and monitoring activity, many providers are likely to be forced to exit or sell out to large, more scalable competitors.”
He continued: “We expect that this process during 2013 will actually clean the industry from one with 100 plus providers into one with less than 20 larger providers who will offer differing services and pricing options depending on the sophistication of its target market.”
SIPP mergers and takeovers
Industry observers note that the change predicted by James Hay may have already started.
The past few months has seen Curtis Banks take over the bespoke SIPP arm of Alliance Trust, Suffolk Life has bought a number of SIPPs from Pointon York and only last week it was announced Dentons would be taking over RSM Tenon Pension Trustees.
Some leading SIPP experts are concerned that a large decrease in the number of SIPP providers will reduce consumer choice and ultimately lead to a small number of larger firms dominating the market. This in turn could lead to reduced investment flexibility, reduced innovation and less competition on charges.
However, Chris Smeaton disagrees with this: “Does this mean customers will lose out? Absolutely not. In the long term customers will be dealing with much larger, safer and scalable businesses, which will be much better placed to deal with the level of regulatory scrutiny and the demands of the financial markets.”
Many bespoke, SIPP providers would argue that it is possible for a smaller SIPP provider to offer a safe, secure and regulatory compliant service, which embraces technology at all levels, including platform integration.
Oliver Bowler of SIPP Provider, Talbot & Muir, said: “To purport the notion that only larger businesses are safe is not only naive beyond belief, but is also clearly self-serving. Advisers and investors alike have had enough experience with larger, so called safer, institutions over the last few years to see through this remark. It is true that SIPP providers will need to ‘beef’ up their systems and controls and maybe we will lose a lot of the smallest providers as a consequence, but the nature of a true SIPP means that flexible, bespoke service propositions will always be required and this is something the largest providers have real trouble with. ”
Nigel Bennett, Business Development Manager at InvestAcc also commented: “As a medium sized SIPP Operator we have the scale and infrastructure to deliver the best service and support for clients and to meet the new Capital Adequacy regime.”
Nigel continues: “At the same time, we can be more flexible than the larger players without compromising our robust processes, and demand for this is reflected in our strong business numbers. Market consolidation has been good for us, because disturbance of existing client / provider relationships often results in an increase in the number of clients choosing to transfer their SIPPs to InvestAcc.”