Market consolidation marks new cost drive for SIPP providersRSS icon

Written by Simon Bussy on Friday 5 December 2014

Increasing regulator scrutiny and further pressure on margins are driving SIPP operators to take a critical look at their investment proposition and the operational efficiency and scalability of their business model.

Following the new freedoms announced in the 2014 Budget, the focus on pensions has never been greater, and neither has the regulatory focus on a key element of the market – those operating and providing SIPPs.

The SIPP market is undoubtedly facing its ‘perfect storm’:

  • continued FCA focus, including SIPP guidance (FG13/8) and a third thematic review,
  • a 49% rise in SIPP complaints to the FOS,
  • the landmark ruling by the FOS against a SIPP provider for failing to undertake sufficient due diligence on an unregulated investment scheme,
  • an increase in capital adequacy requirements,
  • and finally, significant change to the shape of the market - the domination of the advised SIPP market by platforms, and now, increasingly, the rise of the D2C SIPP and drawdown market.

It could be argued that the FCA’s long game is to create a market with fewer larger providers, operating a ‘restricted’ and clearly governed investment policy, given the market is already witnessing increased takeovers and acquisitions.

Yet the opportunities for those that ‘get it right’ are significant, and it is strongly reported that the SIPP market could double in the next 5 years. Trends indicate the significant majority of this will be through ‘restricted’ platform SIPPs, as advisers demand a seamless transition for clients into new yet flexible retirement arrangements. However, bespoke offerings which embrace the FCA guidelines and requirements will still have their (increasingly niche) place in the market.

It has never been more important for SIPP providers to have in place:

  • the right SIPP strategy (where the target client is truly at the heart of the proposition),
  • the right framework and operational processes (which not only ensure delivery is efficient and at scale, but which also to demonstrates the agreed strategy is actually being delivered).

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