John Moret: End of era for Sipps world

After reflecting on developments in the SIPP market over the last few weeks I’ve concluded that it’s definitely a case of out with the old and in with the new. New being the regulatory capital requirements applicable from September –and old being a number of the smaller SIPP providers who have finally thrown in the towel or worse.The sale of Rowanmoor and EPML within a few days of each other really does mark the end of an era. The driving forces behind those two businesses have been Ian Hammond and Francis Moore – both stalwarts of the self-invested pensions market with years of experience. Both businesses operated in or close to Salisbury – and coming on the back of the closure of Capita’s (ex-PPML) building earlier this year – it’s another nail in the coffin of a city that was once the centre of the SIPP world.The circumstances surrounding the sale of the two businesses were very different and it is the “distressed” sale of EPML to Curtis Banks/Suffolk Life that intrigues me. I should emphasise that I have no inside knowledge of the circumstances behind EPML’s failure. Francis Moore who established EPML in 2001 has been involved with the SIPP market since it started over 25 years ago and his knowledge of the SIPP market is second to none. The collapse of the business and its subsequent rescue was a big surprise.According to the administrators Smith and Williamson, these were the reasons EPML entered special administration:EPML filed its application for a special administration order on 20 June 2016 because it had become insolvent. There were several factors which have contributed to the insolvency:1) Subsequent to June 2014, a regulatory-related investigation was undertaken to ascertain the precise treatment of certain monies which were held in a pooled account and subsequent events;2) Since 18 March 2016 EPML voluntarily agreed to cease taking on new clients, reducing cash from new fees, following queries arising about thesystems and controls operated by EPML in respect of FCA regulated client assets; and3) As a result of the above matters, substantial professional fees have been accrued in dealing with the above and related matters. These have not yet been paid in full.Professional advice was sought and the Company’s directors were advised that EPML was insolvent and that it should be placed into special administration to provide protection for the clients and creditors.EPML is not the first SIPP Provider to have undergone this type of investigation. As long ago as 2012 the FSA published the findings of their second thematic review of SIPP operators and one of their criticisms was that the majority of SIPP operators “were unable to articulate accurately the application of the CASS (client assets) rules to their business structure...” In October 2013 the FCA published an updated guide for SIPP operators one focus of which was the need for “a better understanding of the CASS rules”. And in 2014 the FCA wrote to all SIPP Operators regarding the findings of their third thematic review which had focused on the procedures SIPP operators used to assess non-standard investments and how well firms were adhering to the relevant “prudential” rules.So the message coming out of Canary Wharf was very clear and SIPP operators ignored it at their peril –albeit that the CASS rules were not really designed for SIPP scheme structures. It was largely as a consequence of their findings that the FCA designed and introduced their new capital requirements which for smaller providers have proved draconian. All of this is further indication that the regulator’s targeting of smaller SIPP providers is having a significant impact. It’s no surprise therefore that we’ve seen a steady stream of acquisitions of smaller providers by a handful of bigger players with more substantive resources.Having been involved with SIPPs since day one I find the demise of so many smaller specialist SIPP providers disappointing –and I believe it is largely a consequence of the increased regulatory burden.I believe much of the collateral damage that has been caused to SIPP investors –and to advisers and SIPP businesses through some ill-conceived compensation schemes – could have been avoided had the FSA got to grips with understanding the SIPP market much sooner. Their first thematic review of SIPP operators issued in September 2009 included the statement “We do not believe that, taken as a whole, small SIPP operators pose a significant threat to our statutory objectives...” How they must regret those words.They compounded this misjudgement by then taking no action until the publication of their second thematic review three years later –during which time many of the disastrous investment schemes were launched and promoted often but not always by unregulated advisers and facilitated by a handful of misguided SIPP providers. That regulatory inertia is in my view the biggest scandal –and yet it has been largely forgotten except by the Pensions Ombudsman in some of his more recent determinations.Somehow I doubt that the consolidation of this market is at an end. There are still too many smaller SIPP providers allowing bespoke investments at a time when revenues are falling. The continuing reduction in bank interest rates will take a toll – even prior to the latest cut in bank rates one major provider had announced a reduction in its rates payable on deposits and as a result of the latest change it will be paying no interest on any balance regardless of size. I suspect other providers will follow suit. We’ve also seen news that one smaller provider is planning to make a one off charge for the work it has undertaken to meet the regulatory changes. All of this suggests to me that we can expect to see more sales of SIPP businesses and I would not be surprised if one or two other smaller providers followed EPML into administration. Whether the acquirers of these businesses can actually make money on their investments – however small – remains to be seen. There are few examples to date of any SIPP operator that has successfully and profitably handled the take-on of SIPP books.And yet at the same time as all this doom & gloom we have news from the ABI of a ten-fold increase in SIPP sales over the last five years – to a figure of 1.7 million new SIPPs in 2015! Quite what to make of these extraordinary figures is difficult. I’m inclined to the view that there are lies, damned lies and statistics! Having kept SIPP industry data for some 20 years my total market size is yet to reach 1.5million SIPPs. I can only conclude that the ABI SIPPs are a different species –far removed from the bespoke SIPPs and their providers which sadly appear to be in decline. To misquote Mr Spock “They’re SIPPs Jim but not as we know them!”

John Moret: End of era for Sipps world

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