SIPPs in danger of being mis-sold

Providers’ and IFAs’ obsession with treating SIPPS as a product to be sold, rather than the all-embracing tax wrapper it is, will hurt the consumer.

SG Wealth Management – the UK’s first advisory service set up from outset as a wholly fee-based, advice-led service – has today expressed its concerns over the way Self-Invested Personal Pensions (SIPPs) are being packaged and marketed to the consumer. The company believes that in its quest to find a more lucrative pension arrangement to sell and/or transfer existing client holdings, the industry is already selling SIPPs to people who don’t need them, and under-delivering against the benefits they can provide to those who do. Most of this arises from the insistence on treating SIPPs as a product, not the tax advantaged wrapper that it really is.

The truth is that a SIPP is not a product at all, but rather a pension ‘basket’ - a wider container of a range of investment assets, from unit trust and OIEC funds, to individual stocks and shares through to holdings in commercial property – no different at all to a conventional well-balanced portfolio, but more tax advantageous. The extent to which SIPPs are not just another pension product is evidenced by the fact that they are not even regulated by the Financial Services Authority (FSA), although the regulator is designing appropriate rules for SIPPs currently.

SIPPS are at risk of being mis-sold for two quite different reasons:

First, at one end of the scale, too many people for whom a straightforward, low cost pension savings plan like a Stakeholder Pension would be more appropriate, are being sold or even transferred to a SIPP. For these people, the added flexibility - and charges - to shelter shares, commercial property holdings and other alternative assets are a waste of time, money and introduce unnecessary complexity. The driver for these sales is simply commission, as the product distributors compete for market share.

Second, at the other end of the scale, many SIPPs are being sold to individuals who could and should take advantage of the ability to include more esoteric assets, but usually by advisers ill-equipped both in terms of expertise and the necessary systems to deliver the real advantages of a SIPP. In this case, the sale of a SIPP may be appropriate for the customer, but the adviser making the sale is not sufficiently qualified or able to deliver the benefits.

SG Wealth Management, being exclusively fee-based and charging clients an annual percentage of assets under management, is highly experienced in recommending, setting up and running SIPPs for its clients. SIPP portfolios can be actively managed for the genuine benefit of the client because adviser remuneration is not linked to product sale or switching: changes are made to the clients’ holdings as necessary to meet their evolving objectives.

Neil Shillito, Executive Director at SG Wealth Management said, “SIPPs are complete overkill for many people. Too complex, too expensive – a sledgehammer to crack a nut. The industry wants to oversell SIPPs because it creates a chance to grab previously-saved pension holdings by transferring them unnecessarily into a new SIPP product. The obvious question is: ‘to who’s benefit?’

For the minority of people for whom a SIPP is appropriate, generally both the SIPP arrangement sold and the adviser selling it are ill-equipped to deliver the full benefits. Most IFAs in the UK have no formal investment qualification or experience and rely on ‘out-sourcing’, which is one of the reasons why ‘fund-of-fund’ arrangements are being sold like hotcakes, despite the extra charges involved.

As the FSA sorts out the details of how SIPPs are going to be regulated later this year, they must take steps to control this over-selling and under-delivering.”