Purchasing risks
If consolidation is to occur, a deal must be struck between willing parties. Where something is no longer wanted and therefore being sold, the question in any buyer’s mind will be, simply, why?
A sale process can take many forms. Two parties might agree bilaterally to enter into agreement where heads of terms are signed and the process moves on to completion, or the seller might instead choose to go to ‘auction’ where indicative bids are made, from which a buyer materialises.
Similarly, there are three methods by which a Sipp book might be transferred.
• Corporate acquisition: where the shares in the Sipp provider’s company changes hands. In this method, the self-contained Sipp book transfers along with legacy liabilities.
• Scheme acquisitions: where the transfer of trusteeship and scheme administrator’s roles of the acquired Sipp are absorbed by the buyers. The buyer does not usually acquire legacy liabilities of the seller’s companies but does acquire legacy scheme liabilities.
• Transfer of member assets: where a bulk transfer moves members’ assets from the seller’s Sipp to the buyer’s Sipp. In this method the buyer can control the transfer of assets and thus largely any transfer of scheme liabilities. This route, however, is the most complex from a client’s perspective as asset ownership physically changes to the new Sipp provider with the necessary re-registration documentation. It might also result in some Sipps being orphaned if not accepted by the new provider.
Due diligence
No deal can be struck until a suitable process of due diligence has been completed. This will be an extremely rigorous and detailed analysis and will cover the points outlined in below.
| Due diligence considerations for selling Sipp books | |
• Viability of the business model • Quality of the portfolio • Investments held • Liquidity of liabilities • Impact on capital adequacy | • Probable retention • Quality of data • Operation • IT compatibility • Level of risk |
From these deliberations will come the decision to buy or walk away and also give a true picture of the value of the transferring business to the buyer.
It may be that warranties and indemnities will be needed for information disclosure of any unidentified issues to protect the buyer’s interests and to ensure there are no unexpected surprises down the line.
The intermediary concern
The RDR has focused advisers on the importance of providing a good quality service to their clients. It will be expected that advisers are aware of the likely changes in the Sipp market over the coming years. Where a client’s provider is to be acquired, whether the acquirer will remain a suitable provider for the client’s future needs must be assessed.
