With more SIPP operator failures and others facing thousands of investment complaints that threaten their existence, for your peace of mind, you should now ask your SIPP operator these 10 questions.
Could Your SIPP Suffer As SIPP Operators Come Under Attack From Many Quarters?
2018 Has Been A Dramatic Year For SIPP Operators
Since publishing Are You Sure Your SIPP Is Safe? in September, distressed SIPP operator Greyfriars went into administration, selling its SIPP and SSAS business to Hartley.
In October, troubled SIPP operator Berkeley Burke lost its judicial review in a landmark High Court ruling. The judgment establishes with greater certainty that SIPP operators have a duty of care to vet unregulated investments for their clients.
The case against SIPP operator Careys is still on-going. The result could send further shock waves through the SIPP industry.
Within minutes of the Berkeley Burke case ending, the Financial Conduct Authority sent a "Dear CEO" letter on the subject of due diligence to those in charge of SIPP operators.
Regulator's SIPP Operator Review
As the consumer champion responsible for protecting your interests, the Financial Conduct Authority has since written a further letter to SIPP operators asking them to provide information about their business activity. This includes:
- Details about their professional indemnity insurance cover and any excesses, exclusions and limits applicable to the cover
- Any notifications they have made to insurers
- Confirmation they have sufficient capital to meet regulatory and other financial obligations now, and for the foreseeable future
- If they sought professional advice regarding solvency or viability of the business in the last six months
- Board minutes relating to any discussion of winding down planning and their solvency
- Details of any discussions regarding a potential sale or acquisition in the last 12 months
- Data for the volume of complaints that have been referred to the Financial Ombudsman Service in the past 12 months that relate to SIPP investments
The Primary Area Of SIPP Operator Concern
The main focus of all this activity centres on non-standard assets. That’s typically loan-based investments, alternative finance, and unregulated bonds in which it’s often impossible to discover the nature of the underlying assets.
Despite many regulated advisers wanting an outright ban of such investments, the Financial Conduct Authority isn’t in support of this.
In her response to a letter on the subject by Frank Field MP, Megan Butler, Executive Director of Supervision, said that effective due diligence checks by SIPP operators is a more proportionate way of protecting consumers.
It’s because non-standard assets only represents 2 per cent of the £300 billion invested in SIPPs.
FTAdviser has published an article with some helpful suggestions on this subject. In it is a list of 10 questions that SIPP operators should be answering.
1. What percentage of the minimum regulatory capital do you hold?
10 Questions To Ask Your SIPP Operator Now
2. How much of that is in the form of Tier 1 capital?
3. Is your SIPP business subject to any regulatory constraints on the acceptance of new SIPPs and/or new investments?
4. Has your policy regarding non-standard assets changed in the past three years?
5. Do you permit new investment into non-standard assets?
6. Do you charge separate and/or additional fees in relation to non-standard assets?
7. What percentage of your SIPPs hold non-standard assets?
8. How many individual non-standard assets are held within these SIPPs?
9. How many non-standard assets are impaired: ie. suspended, failed or failing?
10. Can you list the non-standard assets in which you have 10 or more SIPP clients invested?
You read the full SIPP operator article here.
You Could Be Affected If You Have Commercial Property In Your SIPP
It’s not just in the area of due diligence where SIPP operators have been found wanting.
Advisers have recently been warned that some SIPP operators are not ensuring commercial property is adequately insured when it’s put into their SIPPs. Just as concerning, SSAS doesn’t escape this issue.
A representative of NFU Mutual said:
I frequently see SIPP and SSAS providers dropping the ball when it comes to the on-going protection of the investment.
He warned that if commercial property isn't properly insured, it could lead to claims being declined and investors being without their retirement savings.
So if you hold commercial property in your SIPP or SSAS, it would be a good idea to check your insurance with your SIPP operator now.
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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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