John Moret has been an evangelist for Sipps since their launch in 1989 and, while his predictions for growth of the sector may once have seemed optimistic, he has consistently been proved right.
At the end of 2009, he predicted the number of Sipps would surpass one million by 2015, a number that has almost been reached already. So when he predicts the sector will account for £200 billion in five years’ time, that optimism should not be dismissed.
But it is difficult to recall a time when the Sipp sector was under as much pressure as it faces now. It was at the heart of a perfect regulatory storm last year, as the Financial Services Authority (FSA) consulted on a hike in capital adequacy requirements on top of tougher disclosure rules.
The changes to capital requirements will force many Sipp businesses to increase their reserves more than tenfold, and the FSA has predicted nearly 20% of the firms affected could face closure as a result.
The regulator’s plans include controversial measures that would separate standard from ‘non-standard’ assets, with higher reserves required for the latter.
Unregulated collective investment schemes (Ucis) would be deemed ‘non-standard’ as well as, more controversially, commercial property, as the FSA has argued that difficulties in unwinding the investments prompted the need for stronger standards.
If advisers were in any doubt that the regulator had Ucis held in Sipps in its cross hairs, those were dispelled earlier this month when it issued a warning over flaws in the advice on such investments.
Reducing investment choice
Moret, who has earned the tag of Mr Sipp, said the FSA was being too heavy-handed in its treatment of the Sipp sector.
‘One of its principles is proportionality, but it’s debatable to call [the capital adequacy] consultation that [proportionate], when it proposes to force 20% of businesses to wind up. All of these are well-run decent businesses.’ he said.
A cull of the Sipp sector as a result of the changes would lead to advisers losing out, said Moret. ‘There are situations where an adviser wants to use a specialist provider for a specialist investment, and we’ll find there’s far less choice over time,’ he said.
He is likewise critical of the regulator’s stance on Ucis investment in Sipps, and argues its actions could reduce investment choice: one of the crucial selling points of the wrapper.
‘There are some Ucis in Sipps that are probably inappropriate, and there are some Ucis in Sipps that are reasonable investments. Provided investors understand the risk, provided advisers are happy with the suitability, I’m not sure one should automatically assume they shouldn’t work together,’ he said.
‘The reasons Sipps were introduced in the first place, in 1989, was to give investors more choice outside of insurance company funds and what are now platform-based investments. If we do away with the choice, we do away with Sipps.’
Moret is not blind to the need for reform of the Sipp sector but argued the FSA’s current proposals did not align tougher standards with higher risks.
He said the regulator should adopt an approach that takes greater account of the quality of management, systems and controls and the sort of investments held.
He suggested ongoing reviews of Sipp business, with the FSA reapproving firms every five years, as an alternative to the current proposals.
‘I think there’s a case for reapproving all Sipp businesses. I think the majority of current Sipp businesses would satisfy a reasonable test. That would be more acceptable than driving out Sipp businesses,’ he said.
2011-present MoretoSIPPs, principal
2004-2010 Suffolk Life, director of sales and marketing
2000-2004 PPML (now Capita SIP Services), managing director and executive chairman
1996-1999 Winterthur Life (now AXA Wealth), director of sales and marketing
1995 Winterthur Life, head of marketing
1986-1994 Winterthur Life, pensions manager
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