Stage_SpotlightIn the latest of our ‘In the Spotlight’ interviews we caught up with Gillian Bardin and Kerry Houghton of Taylor Patterson to see what is happening at one of the leading provider of self-invested pensions.

Phillip Bray:

Let’s start with a look at the most recent change to how SIPP providers will operate. What’s your view of the changes in capital adequacy announced by the Financial Conduct Authority (FCA) a few weeks ago? Is it a good thing? How will it affect you at Taylor Patterson and your clients?

Gillian Bardin

Gillian Bardin, Taylor Patterson

Contact Gillian on:

01772 550619

Gillian.Bardin@taypat.co.uk

Visit Taylor Patterson’s website

Gillian Bardin (Managing Director):

At last we have a decision which is positive for the sector and for members who will now be able to discuss with their provider the impact of the rules and whether they are committed to the SIPP sector.

I don’t think there will be an immediate impact on clients, after all the rules are not in force until 2016, however in the longer term any new regulation changes the marketplace.

Kerry Houghton (Business Development Manager):

There are some specific issues too. For example commercial property is obviously a topic close to our heart and the debate over what is ‘standard’ and ‘non-standard’ is one we are following very closely.

Phillip:

Do you think you will treat UK commercial property as a ‘standard’ asset?

Kerry:

I think it’s still unclear, we’ve seen different opinions but why would the regulator say that UK commercial property is ‘standard’ and then assume that the majority will be ‘non-standard’? It’s a real debate at the moment especially in relation to the 30 day rule and more clarity is needed.

Phillip:

Is the regulators view that if it can be transferred within 30 days it is ‘standard’ and if not it is ‘non-standard’?

Kerry Houghton

Kerry Houghton, Business Development Manager

Contact Kerry on:

01772 550619

kerry.houghton@taypat.co.uk

Visit Taylor Patterson’s website

Kerry:

Yes.

Phillip:

So it’s then a question of whether a transfer can be successfully completed within 30 days?

Gillian:

Yes and at what point does the 30 days start ticking? It’s not clear.

There are other complications, for example, where there is an outstanding loan the bank will have to be involved, which in our experience slows things down.

Phillip:

Any other issues from the capital adequacy review?

Gillian:

On a positive note, at least we now have a decision and more clarity; although we clearly have questions about certain aspects.

There is also an issue in the way the surcharge on ‘non-standard’ assets has been calculated; if you have very little exposure to ‘non-standard’ you end up with a relatively large excess.

Phillip:

Do you think it’s fair that the FCA has built the surcharge on the number of ‘non standard’ assets rather than the value?

Kerry:

It’s a difficult one because they have done it in response to some SIPP providers writing down the value of a ‘non-standard’ asset to a £1, but for those providers who have very little exposure it seems unfair.

It could lead to issues where we have a relatively large SIPP, say £750,000, with a small amount, for example £20,000, in non-standard assets. In such cases there is plenty of money to pay fees and provide liquidity, but it may cause the investor problems if he or she seeks to transfer their SIPP. Some SIPP providers might be wary about taking on the client due to the impact it will have on their capital adequacy position, for what is a very small investment into a ‘non-standard’ asset for an otherwise excellent SIPP.

Phillip:

What are the unintended consequences of the new rules for SIPP members?

Kerry:

More restrictive investment choice is going to be a big thing moving forward, we’ve already seen that starting.

Gillian:

I think many of the bespoke SIPP providers are probably going to pull away from anything ‘non-standard’. But is that really a bad thing? I’ve got mixed feelings and it probably should be treated on a case by case basis.

We could also see an increase in fees charged to members who want to invest in ‘non-standard’ assets.

Phillip:

So for your average SIPP member, who has shares, funds, maybe commercial property, deposit accounts, do you see anything negative?

Kerry:

No, and I think it’s given us some clarity and certainty to the sector.

Phillip:

Are we heading towards a permitted investment list or is this a defaqto permitted list?

Kerry:

We are in favour of a permitted investment list, but I think this is as close as we’re going to get; we just don’t see HMRC or the FCA coming out with a list.

Phillip:

What effect will the final rules have on Taylor Patterson’s capital adequacy requirements?

Gillian:

We’ve always more capital set aside that we actually need and can already meet the new requirements, which is a great position to be in.

Phillip:

What are the wider challenges that the self-invested pension world is facing?

Kerry:

Accommodating flexibility moving forward and service, which people will value more than they have ever done, especially at retirement given the new rules from April 2015.

Phillip:

You mentioned service, which is clearly key to members, what else do you think is important to an investor or adviser when choosing a SIPP?

Gillian:

Accessibility to real people who can help, which brings us back to service.

Certain providers operate call centres and members can’t get access to the right individual. We work differently, for example if a query becomes very technical we are happy for the member or adviser to speak to our technical team direct, which is something a lot of our members and advisers really appreciate.

This will be even more important after April next year.

Flexibility is also important, and whether a provider is able and willing to offer access to all investments available through legislation.

Phillip:

How important is price?

Kerry:

There’s a lot of pressure put on advisers to consider price when what the client wants is a high quality service.

Unfortunately there’s been too much emphasis on price and not on service and flexibility.

Gillian:

We’ve spoken to a few IFAs who have high net worth clients in very cheap SIPPs but experiencing very poor service, which causes a problem for the both the adviser and the client.

You’ve also got to question how viable some of these very cheap SIPPs are in the long term.

Phillip:

Let’s talk about the Budget, what’s your view? Have the proposed changes in retirement gone too far?

Kerry:

Because we tend to deal with high net worth members it’s great news, but I am nervous that people who have relatively small pensions might be tempted to take large lump sums.

I’m also worried that people could spend their pension, for example to help their children get onto the property ladder, without thinking about their own future income needs.

We’ve got some experience of this through Flexible Drawdown, where most people took a sustainable level of income and didn’t ‘raid’ their pension pot. We’ve only actually had one member, who has taken the whole fund, which I might add was done for the right reasons.

Gillian:

In the high net worth space we don’t see members stripping out their funds, but at a lower level we are concerned.

We’re also concerned that people in valuable defined benefit schemes might be tempted into transferring their pension just to take advantage of the new rules, when we all know this is unlikely to be in their best interests.

Phillip:

Do you think the new rules will give pensions a boost?

Kerry:

Yes, we’ve already had people change their views on pensions. Accountants in particular, who have often been quite cynical about pensions, are changing their views.

Those people who were previously anti pensions have had many of their arguments blown away.

Gillian:

It’s the increased flexibility; people now perceive that they can have access to their pension when and how they want it, meaning we’ve had a lot of people coming to us now wanting to talk about pensions.

Kerry:

We also believe that entrepreneurs, who previously found pensions too restrictive, might now be more interested in pensions under the new rules.

Phillip:

Let’s move on to Taylor Patterson, you’ve got four SIPPs, Lanson, Master, Group and Cash what’s the thinking behind having four distinct products?

Kerry:

Each SIPP fulfils a different need and is targeted at a different market. It makes sense to us therefore to separate them down, we don’t believe the ‘one size fits all’ approach is the right one to take.

Lanson is our online offering for members who want access to a platform. The Group SIPP is used in the main for joint property purchase. The Master SIPP is the bespoke SIPP which allows access to a wide range of investments and the Cash SIPP is simply a slimmed down version, targeted at members who only want deposit accounts.

Gillian:

When we first set up the SIPPs it was important for us to have clarity and a scale of charges for each separate product.

At the end of the day it’s much clearer for members and they can switch from one SIPP to another.

Phillip:

It’s rare to see a Cash SIPP, I can only think of one or two others

Gillian:

It was actually driven by the property SIPP. It takes time to transfer cash and then make the purchase and it acts as a home for money until this was done. It was unfair to have a client with the more expensive Master SIPP when they were only holding cash.

Kerry:

There are plenty of other times too when holding Cash in a SIPP can be right and it’s unfair to charge for full investment flexibility when it isn’t being used.

The fees for the Cash SIPP are therefore extremely competitive and we’ll accept any FSCS (Financial Services Compensation Scheme) protected bank and building society accounts.

Phillip:

On top of the four SIPPs you’ve also got a SSAS (Small Self-Administered Scheme)

Gillian:

We do indeed, in fact we have three; the Full Service SSAS, Investment Only SSAS and One Member SSAS.

Again we’ve tried to give clarity for members so they can see the charges they will pay; we believe it works better than having one product with a complex menu of charges.

Phillip:

When do you see investors and advisers using a SSAS rather than a SIPP?

Kerry:

More frequently at the minute, especially when it comes to property purchase, the pooled funding option helps, although it can be a negative, especially if they fall out!

Gillian:

We’ve also seen an increase in the number of people asking about SSAS loan backs.

It’s probably driven by the economic conditions, with banks still not lending, or in some cases offering unacceptable terms.

Many of the enquiries are driven by accountants and there are also some entrepreneurs who see SSAS lending as more palatable than borrowing from a bank. They are effectively paying interest to their own pension pot and can to some degree be more flexible on the terms they set.

Many business owners have had a bad experience with a bank and just don’t want them having so much control over their business, especially in relation to debt covenants, personal guarantees and debentures.

Phillip:

What do you allow as security for lending from a SSAS?

Kerry:

Obviously commercial property, there are occasions when we’ll accept residential property, although we are cautious.

We can look at other types of assets too, the key, as always, is flexibility.

Phillip:

Why do you think advisers and members use Taylor Patterson:

Kerry & Gillian:

Service!

Gillian:

Personal service to be more accurate.

It’s about long term relationships with both members and advisers; for example many of our SSASs have been with us since the 1980s and we are on the second or third generation.

We listen to members and IFAs too, this is shown in the simple charging structures for our products, our recent recruitment of more staff and our latest offer on SIPP property transfers; all of these have resulted from listening to our clients.

Phillip:

Last question, if you each had to describe Taylor Patterson in three words, which would you choose?

Kerry:

Professional, caring, fun.

Gillian:

That’s true, after all our strapline is fair, fun and rewarding for all.

Note: This article reflects the view of the author. It does not necessarily reflect the view of Investment Sense Limited. The article has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author.

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