The man known as the godfather of Sipps, John Moret, recently set up his own consultancy to help advise providers and advisers. After a long career in the Sipps market, we asked “Mr Sipp” to share his thoughts on the way ahead and how Sipps fit within the Financial Planning profession.
Financial Planner: Tell us about yourself and how you came to be so heavily involved in the development and growth of Sipps?
JM: I started as an actuarial trainee and found myself involved with the early development of small self administered schemes (SSASs) at Sun Life – working with talented individuals such as Trevor Llanwarne – now the Government Actuary. That sparked my enthusiasm for the control and flexibility that self investment offers and that was repeated when Nigel Lawson created the opportunity to achieve this within a personal pension wrapper in 1989.
FP: When did you focus on Sipps and what sparked your interest?
JM: I was lucky enough to be working at the time for Provident Life (which became Winterthur and latterly Axa Wealth). We launched a Professional Advisers’ Division in 1988 which offered only non-commission bearing products - and introduced flexible adviser remuneration in 1989 – effectively adviser charging 23 years before RDR! We pioneered Sipps in our right and through our acquisition of Personal Pensions Management (PPML) which had been the first company to launch a true Sipp. We tried to launch a flexible annuity in 1993 – but the product was banned by the Revenue who said it didn’t meet their previously unpublished criteria of “safe, stable, regular and for life”.
We led a campaign of over 1,000 advisers to get the legislation changed – and following two trips to Number 10 - we helped shape income drawdown which was introduced in 1995. Also we were very early sponsors of the Institute of Financial Planning – some older readers may well remember the Lygon trophy and some of the stalwarts of the Institute such as David Norton, Tony Sellon and Tony Shepherd for whom I had great admiration. They were great days.
In 2000 I took over as chief executive of PPML and almost led an MBO of the company in 2001. At the last minute that failed and it was downhill from thereon - the company was sold to Capita in 2004 and renamed. I learnt more in those four and a half years at PPML than in the rest of my career – and it taught me the importance of service quality and the need for a good robust technology platform. Indeed but for a crucially flawed decision on a software company I still believe that PPML could have led the way in developing the platform market in the UK.
I left PPML when it was sold and spent the next three years helping grow Suffolk Life’s presence in the IFA market. Suffolk Life was sold in 2008 to L&G. That taught me another important lesson that “timing is everything”. We sold in May 2008 – four months before the crash! I stayed with Suffolk Life until I retired from employment in 2010 and set up “MoretoSipps”.
FP: There are now about 700,000 Sipps in place with, probably, over £100bn invested yet many still treat Sipps as a niche market? Do you see this changing?
JM: This and many of the following questions all hinge on the definition of a Sipp. Many of the large insurance companies have simply relabelled their personal pensions. Many platforms simply see Sipps as a means of getting assets onto their platforms. Then there are the genuine Sipps offering wider range investments such as commercial property along with direct equity investment often via a stockbroker. And there are combinations of these. It all makes for a very confusing picture – not helped at all by the FSA deeming all Sipps to be packaged products – when quite clearly many of them aren’t. I don’t consider Sipps to be a niche product anymore - Sipps probably represent around 10 per cent of the total DC pensions market – and of course there is growing interest in the use of Sipps in the workplace – yet more scope for confusion!
FP: The Sipps market has boomed in recent years in spite of the problems in the pensions sector. Do you see this continuing, especially in light of auto-enrolment?
JM: Sipps have had a “sexy” label ever since the prospect of investing in residential property was raised in 2005. However, more recently they’ve attracted some negative publicity particularly through association with some unregulated collective investments schemes. Sipps, are and will increasingly be, an aggregation vehicle - particularly in the run up to retirement - and with the likely continuing fall out from public sector and DB schemes - not to mention legacy insured pensions - I believe the future prospects for the Sipp market look good. I am dubious about the impact of workplace pensions and Nest on the Sipp market and again I can see that over time a Sipp will become the personal pensions vehicle for those with significant accumulated assets in Nest or an employer’s scheme.
FP: You’ve often said Sipps are not for everyone. Who do you see as the ideal candidate for a Sipp?
JM: The ideal candidate is one with accumulated pensions wealth built up through a series of pensions schemes – and who is possibly in a position to contribute on an ongoing basis. However there are variations – for example individuals using a Sipp as an additional pensions savings vehicle – the “Sipp on the side” – or those using a Sipp for a specific business reason, for example, commercial property.
FP: Sipps have proved popular in the Financial Planning market but some planners have been concerned about high charges and lack of transparency, is this valid?
JM: Sipps are an ideal vehicle for Financial Planners as they demand a high level of attention and care with regular reviews being essential – they fit well with a holistic approach to retirement planning. Increasingly they also fit comfortably with platforms – particularly those that have an “open architecture” approach. I believe the importance of charges can be overstated - the average lifetime of a Sipp is probably in the region of 20-25 years so the impact, for example, of the first year fee is relatively small. What is important of course is value for money - the greater the use of a wider range investments the more one can expect to pay. There’s been a lot of criticism about lack of transparency particularly around interest rates on bank accounts and rebates from fund managers. I think this may be overstated but it is important that planners are clear on the stance that a particular provider adopts on these issues - and takes this into account when selecting a provider.
FP: You run a “survey of surveys” on the Sipps market – what does this tell you about the current state of the market?
JM: My “survey of surveys” divides the market into two main segments – the collectives Sipp and the bespoke Sipp - with a subdivision that looks at non-advised Sipps. All three segments continue to grow – with the main growth coming in the collectives segment driven largely by platform activity which I expect to continue. Growth in the non- advised Sipp segment is also accelerating and again I see this trend continuing – largely because there won’t be enough planners around to cope with the demand.
The market itself is dominated by five providers - they account for around 75 per cent of the total Sipp market which I estimate is now well over 750,000 Sipps. The bespoke sector of around 180,000 Sipps covers nearly 80 providers – an average of just over 2,000 per provider. With the cost base growing and prices under downward pressure I can only see increasing consolidation in this part of the market.
FP: Recently, we’ve seen arrival of the “Family Sipp” – what is your view on this and will see further niches develop?
JM: These types of development will always be niche in my view – largely the domain of the specialist bespoke provider. I think the area where we will see development is the at and post retirement market – utilising combinations of the new drawdown regimes and different types of annuity.
FP: What concerns do you have about the Sipp market over the next five to 10 years?
JM: I worry about the increasing regulatory overhead, particularly on smaller providers. The current regulatory regime was developed on the hoof as a reaction to the prospect of residential property being an allowable investment and the “packaged” product approach which was adopted by the FSA is really unsuitable for the bespoke end of the market. There are numerous anomalies and inconsistent treatment with platform regulation. Sipps are a service as much as a product and yet regulatory focus seems to be on more standardisation around the “packaged product” approach.
On the advice side the FSA has been firm in dealing with some of the poor practice prevalent in some parts of the market although I worry that advice in the area of pension transfers will become so heavily regulated - and expensive - that many consumers will end up not taking advice, hardly a desirable outcome. I don’t believe for example that sufficient weight is given to the advantages of consolidating multiple pension arrangements under a single Sipp wrapper. Quite rightly the FSA focus on suitability but often this seems to concentrate on costs rather than added value.
FP: What advice would you give a Financial Planner, new or old, when it comes to selecting a Sipp partner?
JM: That does depend on the type of provider the planner is looking for. In the mainstream market technology and access to platforms are likely to be a very important consideration. At the bespoke end it’s likely to be more about experience and expertise in dealing with specific investments although e-enablement will still be important. Obviously pricing will be a consideration too – but above all I think the quality of service and longevity prospects are the two key issues.
FP: What are your three main predictions for the Sipps market over the next two to three years?
JM: 1. The market will continue to grow and will top a million Sipps within three years. 2. The regulatory “straight jacket” will continue to add cost and threaten the existence of smaller providers. 3. Sipps will drive growth in the platform market – particularly the direct to customer model – but take up of workplace Sipps will fall short of expectations.
FP: How do you relax outside of work?
JM: I am a very keen tennis player – I’ve had a serious Achilles injury for the last year and only just got back to playing –it’s been torture. I’m hoping to play at Wimbledon again this year (in the national veterans grass courts) – I’ve played there twice and lost in the first round both times. I play a little golf – badly and am a keen gardener. Now I’m semi-retired (in theory) my wife Julie and I are enjoying more time at our apartment in Spain which is where I really relax. I am also a grandfather now – so enjoying time with the family is even more important.