What remains key, and is evidenced by its absence from the regulator’s requirements, is that the Sipp operator is not expected to hold a view on the potential return generated by the investment nor on the appropriateness of an asset for a given individual. This remains the remit of the financial adviser.
The regulator’s requirement for risk analysis is of course for the ultimate benefit and comfort of the end client but in addition, the Sipp operator will want to review each asset based on its own risk management criteria for its own business purposes. The operator’s risk is not confined to the failure of the investment and potential action from the affected member but could also include risk of unforeseen administrative complications in holding, valuing or disposing of assets resulting in higher than anticipated administration costs which might not be recoverable from the member.
Different Sipp operators may interpret risk in different ways and indeed some may hold greater experience and/or expertise than others. For this reason, there will continue to be a variation in the permitted assets between operators, and advisers will need to be aware of this when placing Sipp clients.
There are many tools available to Sipp operators including the outsourcing of some investigative work to third parties but the overall responsibility of asset acceptance will lie with the Sipp operator.
Risk evaluation/analysis will vary between asset classes but taking commercial property as an example, a Sipp operator will need to collect the details as shown in Box 2.
In principle
With all details seen in the box, a decision in principle can usually be made, but the acceptance will still be subject to the ongoing review of anything identified in solicitors’ searches or other items that may come to light during the process.
While UK-based commercial bricks and mortar property has been categorised as a standard asset, the Sipp operator will need to identify at outset whether any factors relating to the property might lead it to assess that it cannot be disposed of within a 30-day period should the need arise.
Such factors might be the approval of a superior landlord on disposal for a leasehold property, whether legal charges attach as would be the case if borrowing could not be discharged, or whether the property might be owned through syndication where other parties’ involvement may delay a sale or transfer.
While the heightened capital adequacy requirements do not come into effect until September 2016, the nature of commercial property investment is long term and thus it would be expected that property acquisitions are still likely to be held at this date.
