SIPP Panel (October 2007) - Wish list

Chairman:
Stuart Bayliss
Director
Annuity Direct
Bayliss is a director of Annuity Direct and other adviser services. Annuity Direct has been a major advocate of improvements in the open market option process, assisting in developing new products and e‑solutions for the whole market. Through his consultancy, The City Partnership, activities have included managing the development of Leeds (Halifax) Life and repackaging M&S Financial Services.

Tom McPhail
Head of pensions research
Hargreaves Lansdown
McPhail has worked in financial services since 1986. He spent a total of 12 years working for insurance companies in sales and marketing, including four years working for a specialist SIPP and drawdown provider in the mid-1990s. In 1998 he rejoined IFA firm Torquil Clark where he set up and ran their direct to customer retail pensions operations. In 2002 he was recruited by Hargreaves Lansdown as their head of pensions research and company spokesman on pensions issues.

John Moret
Director of sales and marketing
Suffolk Life
Moret is often referred to as “Mr SIPP”, having spent much of his working life promoting the advantages of SIPPs. He was the inaugural chairman of the SIPP Provider Group (now AMPS) and has worked closely with government and regulators on a range of issues, including the introduction of income drawdown and the regulatory framework for SIPPs.

Martin Tilley
Pension consultant and business development manager
Dentons Pension Management
Having worked within the SSAS departments of Sun Alliance & Crown Financial Management for six years, Tilley joined Dentons in 1988. He qualified as an Associate of the Pensions Management Institute in 1994.


Bayliss: There seems to be an indication that direct selling of self-invested personal pension products is increasing significantly. What impact has the demand for direct SIPPs had on your business? What are the risks the client faces in not involving professional advice?

McPhail: The demand for direct SIPPs has had a significant impact on our business. We have set up over 30,000 new individual SIPPs over the past few years and the majority of these have been on a non-advisory basis. We anticipate the demand for direct SIPPs will continue to develop and grow, with an expanding core of the population showing a willingness and appetite to take responsibility for their own retirement provision. Investor engagement with pensions will ultimately deliver far better outcomes for those investors than will the quasi-compulsory approach of personal accounts.
The risks faced by investors need to be put into context. The majority of SIPP purchasers are investing the bulk of their retirement savings in mutual funds, while a minority is investing in direct equity holdings and a tiny minority is making use of more esoteric investment opportunities, such as direct commercial property, traded endowments and so on.
SIPPs put investors in control; they give them access to top-quality investment opportunities, rather than the second-rate fund offerings available from most personal pensions and stakeholder pensions; SIPPs promote investment engagement and encourage investors to take an interest in their retirement funds, rather than accepting a mediocre default fund.

Moret: SIPP surveys confirm there is growth in the number of direct or “execution only” SIPPs that are being sold – although the growth rate is much the same as in other parts of the SIPP market. The average fund size appears to be much smaller than the traditional bespoke SIPP – in the region of £40-£50,000 compared with our average SIPP fund which exceeds £250,000.
We stopped offering direct SIPP business 18 months ago as we were concerned about the risks both to the investor and to us as the scheme operator. It is dangerous to generalise about risks because every client’s situation will be different. There will be occasions where the direct SIPP represents only a small part of the investor’s total pensions wealth – “a SIPP on the side” – which perhaps replaces what previously might nave been an additional voluntary contribution or similar.
There will also be a small number of “professional” investors who have the time, knowledge and desire to run their own SIPP. However, in the majority of cases, we believe investors will benefit from advice and investment management.

Tilley: The media coverage of SIPPs over the last two years has highlighted the pensions issue in general and raised awareness amongst the public. Unfortunately, tabloid media articles are often poorly written, with insufficient detail and being occasionally sensationalised and inaccurate. It would be helpful if the media concluded in a responsible manner by recommending that advice is sought from a qualified adviser.
However, with the widening in electronic resources available to the public, as with all commodities, it is tempting to think that one’s own research can find a suitable product as good as or better than any recommended by a “salesman”.
This in itself is the danger issue. It is actually what the direct client does not know they do not know that will cause them longer term damage. They might easily miss the intricate detail that a qualified advisor would pick up in recommending transfers or correctly identifying features that an individual may require.
In respect of our own business, the large majority of our clients are introduced through independent financial advisers, although we have previously seen a sizeable number from investment houses, accountants and property developers. These latter introductions are likely to reduce in number since April, as only FSA-regulated individuals should now be making recommendations for the establishment of a SIPP.


Bayliss: Are commoditised SIPPs really SIPPs or are we seeing a middle-way product as indicated by Skandia’s own marketing?

McPhail: HM Revenue & Customs and the FSA both have very broad definitions of a SIPP: that they are pensions in which an investor can choose their own investments. This could in theory cover a stakeholder pension where the investor chooses his own fund. More realistically, I suggest a SIPP is a pension where the investor isn’t confined to a set menu of investment choices, which the product provider has pre-negotiated. So, while a fund supermarket pension could arguably be described as a personal pension (though one with more choice than most), once the investor is offered the universe of UK and overseas investments into direct equities, I believe they are definitely buying a SIPP.

Moret: I cannot comment on Skandia’s marketing, but legally the typical insurance company product is a SIPP – even if the underlying investments might suggest otherwise. The recent Financial Services Authority bulletin for advisers on suitability reminds advisers of their responsibilities in this area very clearly. The new regulatory regime for SIPPs also applies to personal pensions – reinforcing the FSA’s view that SIPPs are to be treated as “packaged product”.
There will be situations where an investor will choose or be advised simply to invest in collective investments. There will be other occasions where a wider investment choice is required. Clearly, costs are a factor to be taken into account.

Tilley: As a purest and an advocate of the full flexibility of a SIPP, I believe there need to be more accurate definitions of self-invested products. The use of the definition “SIPP” has become too widespread. Many of the commoditised SIPPs are a far cry from the full SIPPs offered by only a select few towards the top end of the market. There is a danger that without full disclosure of product features a client may be thinking they have something they do not and a feature they may require sometime in the future is not available within their product.


Bayliss: Web‑based services for advisers for illustrations, workflow tracking and portfolio analysis have been around for some time. Is it important to provide similar services for direct clients?

McPhail: Direct investors should be given as many analytical tools as possible. These should include online switching, portfolio analysis, what-if calculators and so on. Not all investors will take advantage of these facilities, but, for the reasons outlined above, I believe we should actively encourage investors to get as involved with their long-term savings as possible.

Moret: If your product proposition is aimed at direct clients then clearly the support provided needs to reflect their needs and demands, which might well include the services identified in the question along with others such as online applications, valuations and dealing. Our proposition is aimed at advisers and we therefore leave it to advisers to decide how much web-based access they would like us to provide for their clients.

Tilley: This question can be aimed at more than one market. As with the previous questions, there are commoditised SIPPs offering a standardised approach and limited features that lend themselves more to a technological approach than the fully bespoke SIPP arrangements.
I have no doubt that online illustrations and workflow tracking might be helpful, but I cannot get away from the fact that something like a portfolio analysis tool is best used by individuals capable of fully understanding the information that requires entering, for fear of the answer provided being based on inaccurate input.