As mentioned, PS14/12 re-categorised this as a standard investment unless the Sipp provider identified that it would take longer than 30 days to transfer the asset in question, in which case it should be deemed non-standard. CP15/19 tried to clarify this by stating that the asset should be “capable” of being transferred within the 30-day period.
By its own admission, the document confirmed this would be a “broad judgement” which will be left in the hands of individual Sipp providers. The worry here is that an inconsistent approach by Sipp providers as to what is capable of being transferred or realised could result in operators with very similar books of business categorising property assets differently, which could result in very different levels of capital adequacy to be required. This potential for a difference could result in the meaningful comparison of each firm’s capital adequacy and thus reassurance of ability to administer client schemes in the event of a wind-up or disposal being flawed, and in a worst case scenario, the artificial reduction in the levels of capital reserves being required.
The impact on Sipp providers will of course vary across individual firms, but there will be few if any for which the new benchmarks’ requirements are lower than under the old regime.
It is estimated that some firms with a particularly large proportion of non-standard assets might see capital reserve increases of 500 per cent. In recent surveys most, but not all, Sipp providers claim to already meet the new benchmarks, but ensuring each has a robust methodology for calculation would be wise.
Capital adequacy is of course only one issue that advisers and their clients will need to consider when assessing the suitability of a Sipp provider. Financial strength, however, can be a good indicative factor. In a market which is constantly changing due to economic, legislative and regulatory pressures, a strong provider might be better able to react quickly to change, to adopt new features, develop and update administration systems and technology.
Other relevant factors that might be considered could include range of permitted investments, quantifiable service standards, length of time and experience in the market, whether operating Sipps is the prime function of the firm, and of course relevant costs and charges.
Looking at these points individually, it is apparent that things change, so a constant monitoring of the market might be necessary. There have been some notable changes to some Sipp propositions following the regulators’ third thematic review, which was concluded in July 2014. One of the key statements made by the regulator was that “our thematic review found that most Sipp providers failed to undertake adequate due diligence on high-risk, speculative and non-standard investments”.
