If you think ‘self-invested’ means YOU decide what SIPP investments to hold, think again!
Competition And The Internet Often Increase Choice, But Not, It Seems, When It Comes To SIPP Investments
The following list is the FCA's list of standard SIPP investments. The new additions are in red.
• Bank account deposits
• Cash funds
• Corporate bonds
• Exchange traded commodities
• Government & local authority bonds and other fixed interest stocks
• Physical gold bullion
• Investment notes (structured products)
• Shares in Investment trusts
• Managed pension funds
• National Savings and Investment products
• Permanent interest bearing shares (PIBs)
• Real estate investment trusts (REITs)
• Shares listed on:
the Alternative Investment Market;
the London Stock Exchange; or
a recognised overseas investment exchange.
• UK commercial property
• Units in Regulated collective investment schemes
• Unit trusts
• Open-ended investment companies
'Standard' SIPP Investments
In the last couple of years, the SIPP industry has been in limbo, as we highlighted early last year in an article entitled How The Regulator Is Restricting Choice. But at last, the long-awaited report from the Financial Conduct Authority (FCA) has been published.
The FCA has been looking at SIPP investments in detail, deciding which are classed as 'standard' SIPP investments, and which are not. It’s also concluded that SIPP operators will need to hold more cash in their businesses if they allow their clients to hold SIPP investments that are not on the standard list. Known as ‘capital adequacy’, the cash is to ensure that if a SIPP operator gets into difficulty, it has enough money to enable there to be an orderly handover of the SIPP administration to another SIPP operator.
The FCA Has Unearthed Some Worrying Practices
Some SIPP operators’ approach to the due diligence of SIPP investments has been so lax, clients’ pension money has arguably been put at risk in a number of fraudulent schemes and others that are simply scams.
Using its existing powers, the FCA has already stopped some SIPP operators accepting non-standard SIPP investments. In order to prevent further problems, it’s been closing down independent financial advisers who advise on non-standard SIPP investments, but who aren’t treating their customers fairly.
It’s A Blunt Instrument, And There Are Unintended Consequences
According to Hyman Wolanski, managing director of a smaller SIPP operator called Sippchoice, the FCA’s new calculations for capital adequacy are skewed in favour of larger firms. He’s calculated that a firm 16 times larger than his, based on assets, would only need to hold four times the amount of capital his firm would need to hold.
In relative terms, it’s the smaller firms that could be penalised. Yet it’s often the smaller firms that offer bespoke services to their clients, allowing them to invest in a full range of standard and non-standard SIPP investments.
Given the FCA’s power to close down regulated businesses, it’s not surprising the number of SIPP operators willing to stray outside the standard list of SIPP investments has reduced appreciably. The pattern is set to continue, for the FCA has given SIPP operators a couple more years until the new capital adequacy rules come fully into force.
It’s predicted that SIPP operators that don’t have access to capital and those that want to keep things simple will focus on only on standard SIPP investments, reducing choice for their clients. However, those SIPP operators that are well capitalised and who believe that a SIPP should offer a full range of regulated and unregulated SIPP investments will survive.
In fact, it’s likely that SIPP operators committed to offering a full range of standard and non-standard SIPP investments could do extremely well as the market for SIPPs offering full diversification shrinks.
What You Should Do If Your SIPP Operator Restricts Your SIPP Investments
If you want to look at SIPP investments off the standard list that focus Property, Peer-To-Peer Lending and even trading Forex, and your SIPP operator’s opinion is ‘computer says no’, it’s time to move your money to a SIPP operator that is willing to treat you and your money with the respect you deserve.
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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
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