In the latest of our ‘In the Spotlight’ articles we catch up with Matthew Rankine, Technical Sales & Marketing Manager with SIPP provider Liberty.
Liberty have been around for five years now and are growing rapidly, but for those people who are perhaps unfamiliar with the name could you start by telling us a little more about Liberty?
Matthew Rankine, right:
Liberty formed in 2007 in small town called Ramsbottom, just north of Manchester. We were set up to create a pension product that was simple, transparent and flexible. I believe we have done what we set out to do and now have two fantastic SIPP products available. Our charging structure is like no other with no percentage based fees, 100% of bank interest going to the client and no fees on drawdown.
Liberty has two SIPPs, the Liberty One SIPP and the Liberty FULL SIPP, why two? What are the key differences?
The Liberty FULL SIPP was the original SIPP product and the One SIPP is a fairly recent addition to our offering. The Full SIPP provides our client’s access to all HMRC approved investments, certain ones on a case by case basis. The One SIPP is a single investment SIPP that has the same investment parameters as the full SIPP excluding property and unlisted shares. Due to the investment restrictions and the fact it’s limited to one asset, the fees are therefore reduced.
We found that we had such a large variation of clients, with some using all the investment capabilities of a SIPP forming a fully diversified portfolio, whereas others opened a SIPP simply to use their preferred stockbroker, Discretionary Fund Manager (DFM) or platform. There is a lot less administration for the latter client; therefore as we only like to charge for work we actually have to do, we decided to provide them with a lower cost SIPP.
Transition between the two is also very easy and the One SIPP has been used as a stepping stone in the past. Once clients become more accustomed to how a SIPP works they often look to diversify their pension as they would with their personal assets. There is no transfer fee and we just simply change the annual fee in line with the Full SIPP fee schedule.
What are the key reasons why IFAs recommend Liberty SIPPs to their clients?
Firstly I believe IFA’s like recommending Liberty as they themselves and their staff enjoy working with us. Each of our IFAs will have their own personal administrator who looks after all their client needs and queries. This speeds up the process and helps to avoid any confusion. We understand how busy IFAs are, so direct dials to our staff instead of call centres surely helps.
With the upcoming retail Distribution Review (RDR) our simple fee schedule helps advisers show their clients exactly what they are going to be charged throughout the life of the SIPP. With no additional income drawdown fees, unless the investments are changed the fees should stay exactly same. This can help make client projections easier.
Liberty are one of the few SIPP providers to pass on all the interest received on the mandated SIPP bank account to member, this is certainly unusual, tell us more about this approach?
As I have already mentioned our ethos has always been to only charge for work we actually have to do. Setting up the bank account is included in the setup fee and then on-going management requires very little work. I think you have to ask yourself as a SIPP provider, why are you taking a percentage of the client’s interest?
Rates are already extremely low and the client doesn’t need somebody else taking a cut as well. Pensions are well known for everybody putting their hands into the client’s pot and taking a percentage which eats into the clients returns. This has been highlighted by the BBC in recent months showing astronomical fees and very poor investment returns.
Also from a business perspective our returns are not linked to interest rates. Certain providers have struggled recently due to the drop in interest rates however as we charge flat simple fees our main source of income comes from new business and client retention. This means we concentrate on providing an excellent service and not what’s happening at the Bank of England.
Are there any future developments at Liberty you can share with us?
I’m glad you asked! We are in the latter stages of creating an online dealing SIPP alongside a well-known product provider. I can’t release too much information but it will be a low cost, fully online SIPP giving IFA’s a wide range of funds for their clients.
We have already tested it with certain IFA’s and the feedback has been extremely positive. We are looking to launch it at the beginning of July so watch this space.
Turning to the wider SIPP market, do you think the growth in the number of new SIPPs will continue at the same rate we have previously seen?
I think SIPPs are becoming an important part of an IFA’s planning process with more and more of them using the product for their clients. SIPP fees are also decreasing with more online and single asset SIPPs being created, coupled with the fact that the SIPP industry is highly competitive; this means they are becoming available to a wider spectrum of clients not just the £500k+ pots.
However, there is a little uncertainty surrounding SIPPs at the moment with increased regulation and capital adequacy requirements for SIPP providers. There have been a few stories in the press recently that could possibly damage the SIPP market, but it would be hard to find a financial product that hasn’t received bad press over the last few years.
Overall I think with the fees decreasing, lack of decent work place pension schemes and society losing trust in older retirement methods I believe the SIPP market will continue to grow at a steady pace.
We’ve seen Flexible Drawdown become more popular over the past 12 months; will this be a big area of growth for you?
Hopefully, as we don’t actually charge for our clients to go into Flexible Drawdown. It’s something that’s increasing all the time in popularity and knowledge of the area. Applications seem to be infrequent at the moment but I personally feel that we will start to see a lot more now that protected rights can be used as well.
What do you see as the main challenges the SIPP market will face over the rest of this year and into 2013?
Of course capital adequacy is going to have a major effect on the SIPP industry and if SIPP providers aren’t currently running risk model assessments against their current and expected requirements they should be doing very soon. But most importantly the RDR will have a massive impact on SIPP providers. From next January IFAs will need to make all charges, including SIPP fees, quite explicit to their clients. We don’t think hidden fees, time costed rates or turns on interest rate will go down very well with customers once it is in their face rather than hidden in the small print.
Another major challenge, with SIPPs increasing in popularity, will be to keep the service levels high and away from the methodology that life companies have sometimes undertaken when it comes to client communication. SIPPs have a more personal touch than other retirement products and I believe they need to stay that way in order to stand out. At Liberty we make sure our administrators aren’t overloaded with new work so they can concentrate on providing a five star service to all of their clients, new and old.
Matthew Rankine of Liberty SIPP can be contacted on 07854 765 782 or by emailing firstname.lastname@example.org
The views expressed in this article are those of Liberty SIPP.