Looking up towards the sun through a curved framework

Rupert Curtis talks to New Model Adviser about the new pension regime

New Model Adviser

SIPP sales speed up as cap ad kicks in

The pace of consolidation within the Sipp market is set to accelerate, providers have predicted, resulting in fewer firms and a lack of appetite for esoteric investments. The forecast follows the acquisition of provider Pointon York by rival Curtis Banks at the beginning of November.

Consolidation of the Sipp market has been under way since November 2012, when the regulator first set out proposals to hike the amount of capital providers would need to hold.

The proposals, which have since been tweaked, will come into force in January 2016, raising the basic amount of capital Sipp firms must hold from £5,000 to £20,000, and adding a percentage-based surcharge depending on the volume of esoteric assets on a provider’s books.

The majority of acquisitions since November 2012 have seen bigger players snapping up either smaller firms that are unable to meet the incoming capital requirements, or Sipp books run by advisers unwilling to pay more to maintain non-core businesses.

A case in Pointon

The Pointon York and Curtis Banks deal differs in that it sees one established player acquire the entire Sipp business of another.

Geoff Pointon, founder and chief executive of Pointon York, predicted there would be more of these types of acquisition, leading to a fewer operators in the market.

‘We are going to finish up with a quarter of the population of providers,’ said Pointon. ‘I do not think there is any doubt about that.’

While esoteric and non-core Sipp books have already been bought, smaller specialist providers are now set to be snapped up by well capitalised and established rivals such as Curtis Banks, Mattioli Woods, Suffolk Life and Dentons Pensions Management.

Perfect storm

John Moret, a consultant at MoretoSipps, described the current situation as a ‘perfect storm’ for the consolidation of smaller Sipp providers.

He said the combination of new capital rules together with reduced revenues would force smaller firms to seek an exit.

'[Smaller Sipp providers will] ask why are we doing this and can we make money from it?’ he said.

Martin Tilley, director of technical services at Dentons, was open about his firm’s desire to exploit this opportunity and acquire smaller players, particularly those with exposure to esoteric assets.

‘We are keen to be at the forefront of that marketplace. If some firms are saying, “No, we’re not going to be doing that anymore but we have got a book of business that has been doing it”, then we’d be very keen to have a look at them,’ he said.

However he emphasised that the firm would not touch ‘toxic’ assets that were under scrutiny by the regulator and would not pass a due diligence test.

Sign of the times

Another reason for the rising number of Sipp provider acquisitions could be that some running the firms are nearing retirement.

Nathan Bridgeman, director of pension consultancy Talbot & Muir, said: ‘The age profile of people running Sipp businesses is at the point where they are considering retirement, so that points to a natural exit strategy anyway.’

Pointon said his decision to sell to Curtis Banks was largely due to retirement plans alongside regulatory demands. ‘I am 77 and have done my time in pensions,’ he said.

Risky business

While the likes of Dentons may be keen to acquire books of esoteric assets from smaller providers, it is unlikely many large-scale players left in the market will be keen to take on risky new business.

This is due both to the increased capital they will have to hold under the new rules and to the Financial Conduct Authority’s focus on Sipp due diligence and historical links with unregulated collective investment schemes.

The regulator is currently undertaking its third thematic review of the Sipp market since it began regulating it in 2007.

Previous findings have been damning and a recent Financial Ombudsman Service decision against Sipp firm Berkeley Burke regarding due diligence on a biofuel scheme has only heightened firms’ fears of taking on new esoteric assets.

Pointon said: ‘Alternative investments are going to see less activity. Sipps are going to be like ISAs. What the client will want is good administration.’

He added that Sipps would move from serving high-end clients by offering bespoke investments to catering more to the mass market, a move made financially viable by the pension reforms announced in the Budget.

Flexible friend

In the Budget, chancellor George Osborne announced measures to dramatically increase flexibility of pensions at retirement from 2015.

Under the plans, savers who take their pension as cash will get the first 25% tax-free, with the remaining 75% taxed at their marginal rate.

Incoming tax rules will also make it far easier for retirees to keep their pensions invested, taking it as a series of lump sums or entering drawdown.

Rupert Curtis, managing director of Curtis Banks, agreed with Pointon that the new pensions regime should benefit Sipps.

‘We see pension reform as positive for Sipps in terms of increased flexibility and Sipps being the ideal product to take advantage of that. We can move quickly to the market with new products by 6 April.’

Squeeze on consumer choice

Moret and Bridgeman agreed with Pointon that increased consolidation would result in fewer firms taking on esoteric investments. However, Bridgeman argued Sipp consolidation would not necessarily benefit clients as it would lead to higher prices and less choice.

He said: ‘The current cap ad proposals will be to the detriment of consumers because they will lead to further consolidation, fewer providers and higher prices.’


Author: Charles Walmsley

11th November 2014