The ideal scenario is that the remaining providers will be stronger, invest more in their systems and ultimately drive better service to advisers. Some will inevitably try to diversify into SSASs or platforms.
The end consumer looks set to benefit most from the proposals. The regulator will deserve credit if this takes place, although some will argue that the crisis averted may never have happened. The regulator considers parts of the Sipp industry to be fragile to the extent of posing serious risk of consumer detriment. Right or wrong, an industry that was buoyant just five years ago has been rocked by closures, failures, investment scandals and firms forced to close to new business. Should that spiral continue, consumer confidence in Sipps as an effective retirement vehicle could be severely shaken as better providers risk being tainted by the failures surrounding them.
Instead consumers should have greater confidence that their chosen Sipp provider can deliver a safe environment for them to invest to their retirement and beyond. The current situation, where there is uncertainty as to whether a Sipp provider will even exist in five years, is simply unacceptable. It is unthinkable that consumers would risk their other monies – such as bank accounts or Isas – in such an environment. A potential outcome of the regulator’s actions could be a slight elevation of cost to the consumer, a fact that must be balanced with the increased level of protection should things go wrong.
Justifying the means
Whatever the outcome of the proposals, few businesses that fail to put customers’ needs at the forefront of thinking survive in the longer term. With more than one million Sipps now in force, the industry is no longer afforded the luxury of being inward-looking. If it continued that way it would risk being viewed as self-serving and losing sight of on whose behalf it exists. In the not-too-distant future it will beggar belief that virtually anyone could put £5,000 in the bank and take on responsibility for administering the retirement plans of hundreds of investors.
The FSA has nudged and cajoled for several years without the desired outcome. Now it has legislated. Providing a Sipp is no longer part of a cottage industry; it is no longer acceptable to take on board any investments without understanding the risks they pose. Providers cannot simply send money to third-party investment managers and lose track of where it is invested. With the planned changes, they will not be able to operate on resources so limited that there is little hope of protecting their investors should their business fail. Providers may disagree on the intricacies of the FSA’s proposals, but no one can argue with an aim of a safer environment for investors.
