Advisers are demanding even more from their Sipp wrappers as the retail distribution review (RDR) emphasises the need for IFAs to look at a wider universe of investments.
A report by Defaqto found half of advisers prefer Sipps which permit full flexibility of investment choice versus those offering a more structured approach. This compared with just 10% who preferred Sipps which provide structured links to investment services.
Cheap and flexible
Phillip Owen, managing director of London-based RPG Wealth Management (pictured), said cost and flexibility are the two major issues to consider when choosing a Sipp for a client.
‘Open architecture is important, but it’s down to whether the adviser is trying to manage the portfolio himself or simply outsource it. I’m looking for a very simple, cost effective wrapper to be able to bring in my investment model,’ he said.
For Owen this means offering access to external investments, but not necessarily providing an exhaustive list of potential stocks and funds.
‘I’m not fussed whether there’s access to AIM-listed stocks or some odd investments. My model is very simple. I would be concerned, though, if it was a quasi-Sipp with no full access to third parties, as have been offered by some insurance companies. They call it a Sipp but it’s more of a platform.’
Owen uses Sippcentre from A J Bell as a wrapper and then outsources investment.
‘We like the wrapper, it’s efficient and the costs are minimal. We then outsource to three investment managers and that’s it – job done. My role is to look after the client’s affairs and cash flow.’
Cash management is an issue for Owen and instant online access is important to his investment process.
‘I want a Sipp that gives management information.You don’t want too much cash; I normally would leave six months’ worth on the ordinary trustee account. Beggars can’t be choosers and you have to accept the rate,’ he said.
For longer-term cash holdings, he typically buys bonds which mature in line with the client’s income requirements.
‘Cash management, getting management information quickly, is as important as the cost. It means we can be quite proactive. If you’ve got online access it’s very straightforward. Nowadays, if you look at the typical new model adviser, they will be outsourcing investment management. Cash flow management and management information is key.’
Hyman Wolanski, managing director of Sippchoice (pictured), which offers bespoke Sipp services, said advisers needed to look at the suitability of Sipps they are offering.
‘Many people don’t need [bespoke Sipps]. The suitability of the product is very important – the regulator is banging on about it. We aim to provide the personal service and what goes with that is flexibility on the investment side.
‘Our Sipp has no investment restrictions – since 2006 there are no restrictions any more. We’re always looking to use Sipps to help people to achieve what they want. Sometimes there is tax to pay, but as long as the client understands that we don’t have a problem. We work closely with the advisers – often they have only a general idea of the more complex arrangements. I would guess we’ve got a much higher proportion of fee-based advisers.’
Another key consideration for advisers when choosing a Sipp provider is quality of service. They regard a Sipp as more of a service than a product and efficient administration is paramount.
Raymond Ellis, director at Scott-Moncrieff in Edinburgh (pictured), tends to select Sipp providers on service levels.
‘For high-net-worth individuals, service is what it’s all about,’ he said.
He also says the requirement for open-market access to underlying investments and discretionary fund management, where required, goes without saying.
Scott-Moncrieff uses three main Sipp providers, depending on the size of the case and the degree of flexibility the client is looking for.
‘For a full Sipp including property we have used Hornbuckle Mitchell,’ said Ellis. ‘We also use Standard Life and Sippcentre.’
With regard to seeking out the bank account with the best rate, Ellis says there is little scope.
‘When you were getting good rates we would shop around, but they’re not necessarily that competitive. There was a bit of a problem some time ago when providers were exposed and they’ve now pretty much come into line.’
Using Sipps sparingly
Sheriar Bradbury, managing director of London-based Bradbury Hamilton (pictured), says it is necessary to match product offerings with the requirements of clients.
‘It would be nice if people could charge a service contract sensibly. Some clients want something really cheap, but everyone wants a certain level of service,’ he said.
He points out that Sipps are marketed as an all-encompassing retirement solution, but he does not see the point of using one unless a client specifically wants to invest in direct shares or property.
‘Otherwise they’re selling it on the wrong basis. There must be lots of people with life company Sipps just sitting in bog standard funds.’
Bradbury has done very few pure Sipps for clients which have invested in property or direct shares and cannot be served via a wrap platform.
‘That’s more straightforward and better matches the person’s actual needs. It’s important to offer open architecture, but we have a preference for unbundled wraps. It’s very clear; everybody knows who’s getting what and there’s good investment choice.
‘A full wrap is perfectly adequate for probably 95% of our clients. I think Sipps are a great idea but for a small section of the market. Sitting in insurance company funds is not really what they’re there for,’ he said.
There is a broad array of Sipps available, ranging from sophisticated, highly flexible propositions to low-cost, straightforward online offerings.
Some offer full open architecture while others have a more guided, limited offering in terms of bank accounts, permitted investments, share dealing and mutual fund trading, discretionary fund management and commercial property purchase and borrowing.
A J Bell provides a range of Sipp solutions: from A J Bell Platinum to Sippcentre and Sippdeal.
Platinum offers a high degree of flexibility in underlying investments and commercial property purchase and borrowing. Sippcentre offers a defined list of 1,850 funds, together with access to a list of fund supermarkets and discretionary managers.
Sippdeal, its direct-to-consumer online Sipp, offers the same range of funds as Sippcentre. There is currently a 0% interest rate on all cash balances.
Hargreaves Landsdown, via the Vantage Sipp, offers a choice of more than 2,000 funds, shares, investment trusts, gilts, corporate bonds and exchange traded funds (ETFs). The cash rate for account balances in excess of £50,000 is 0.25% gross.
James Hay, like A J Bell, offers three levels of Sipp: Private Client, Select and eSipp, with different levels of complexity, flexibility and cost.
The Private Client Sipp enables whole of market investments, while Select Sipp offers either funds available via the Abbey Select Fund range or discretionary or advisory management through an extensive investment manager panel.
eSipp allows investment in direct equities via Abbey Sharedealing plus those funds available on the James Hay Investment Centre. Again, as with A J Bell, currently no interest is paid on cash balances.
Standard Life’s Sipp offers access to both its own and third party funds, and has a panel of discretionary managers. It also has a drip-feed income option, but only if clients are fully invested in Standard Life’s insured pension funds.
Sipp specialist Suffolk Life offers a high degree of flexibility in terms of investment options, with no panels or lists - Its MasterSipp has a wide range of links to discretionary fund managers reducing the dealing costs for clients.
The cash deposit rate for accounts over £50,000 is 0.5% below the bank of Scotland base rate; this increases to 0.25% below the rate for account balances over £250,000.
The IPS Partnership
The IPS Partnership’s Sipp has no restrictions on underlying investments, and carries out a due diligence process on investments which are not authorised by the Financial Services Authority.
It also offers clients the opportunity to benefit from its relationships with discretionary manager Brooks Macdonald, execution only stockbroker ODL Securities and fund platform Cofunds.