So far this year we’ve seen one SIPP provider freeze their fees for the next two two years (Liberty), another impose limits on commercial property purchase (Hornbuckle Mitchell), whilst a third has hiked fees for property purchase (Friends Life). At the same time, execution only SIPPs, Hargreaves Landsown, Best Invest and so on, have announced new charging structures following the introduction of clean share classes from April this year.
Perhaps you dislike changes introduced by your existing SIPP provider, or you think you can get a better deal elsewhere, either way, it’s always worthwhile reviewing your SIPP provider.
If you are thinking of jumping ship, what factors should you consider before deciding that the grass is greener elsewhere?
1. Compare charges carefully
With some notable exceptions, SIPP charges can be horribly complex, we’ve seen some fee schedules run to an astonishing 10 pages!
Make sure you compare like with like and factor in charges you may have to pay in the future, but are not doing now, for example the cost of Income Drawdown or buying an Annuity at retirement.
If you are an execution-only SIPP investor, the job of comparing charges is harder than ever. Firstly, you need to analyse the old charging structure of your SIPP provider, compare to their new ‘clean share class’ charges and then compare that with the alternatives available in the market place before you make any decisions.
2. Investment flexibility
Charges are of course important, all other things being equal, then the less you pay the better. But, you need to make sure your new SIPP provider will allow you to make the investments you or your adviser wish to. Especially as some SIPP providers are becoming both more restrictive and prescriptive.
Take some time to think about the types of assets you want to hold, both now and in the future, then contact you proposed new SIPP provider to make sure they will allow these. You could also ask them if they have any plans to impose restrictions in the future. Of course they might not tell you, but it does no harm to ask.
3. Wider due diligence
Due diligence isn’t all about charges and investment flexibility, there are plenty of other things to consider:
- Is the new SIPP provider profitable? The less financially stable a SIPP provider is, the more likely they are to be taken over or to put prices up
- How will they cope with the new capital adequacy requirements due to be imposed by the Financial Conduct Authority (FCA)? Do they have enough cash in reserve, or will they have to put prices up?
- Do they have a clean regulatory track record? It is widely thought the regulator may impose investment restrictions on some SIPP providers
- Do they provide a fair return on any Cash you hold? Some SIPP providers pay next to no interest on the SIPP bank account, because they keep it for themselves. Others though will pay a competitive rate and also allow you access to other SIPP deposit accounts
4. What do others say?
When we make an important purchase, a recommendation and the thoughts of others goes a long way to helping us make up our mind. But that’s not so easy with a SIPP, until now.
Our SIPP Chat facility allows SIPP investors to rate, compare and comment on their SIPP provider.
Many of us will check out a hotel or restaurant on Trip Adviser (other comparison sites are of course available!) before making a reservation, now you can do the same with SIPPs.
Check out SIPP Chat by clicking here.
5. Exit penalties
Should you consider moving from your existing provider, they will probably charge you a fee for exiting.
Sometimes this is small and not too painful; however some providers can charge extortionate amounts.
Before you make any decisions, get your current SIPP provider to confirm in writing exactly how much they will charge you and factor this into your calculations.
6. A word about commercial property SIPPs
If you hold or are considering commercial property in your SIPP this can be an added complication.
The high charges of some SIPP providers, especially those who have recently increased fees, mean it can still be cost effective to consider a transfer, but there are other costs to consider.
A transfer effectively means a change of ownership of the property, from the old SIPP to the new SIPP, this means there will be legal fees to pay, although Stamp Duty isn’t charged.
You should take care to factor in all costs, including the legal fees, before you jump to a new SIPP provider.
SIPP providers want your business, which means some will negotiate on their fees to help offset the transfer costs.
We’ve already seen Liberty freeze their fees for the next two years and another well-known SIPP provider is offering some significant discounts for SIPP property investors.
If you don’t ask you won’t get, don’t be shy, see how low you can get the fees!
Are you thinking of transferring to a new SIPP?
We can advise whether or not a transfer is cost effective as well as considering all the other factors you should take into account.
The all-important small print
Any decision to transfer a SIPP must not be taken lightly and you should not base your decision on this article alone. Should you wish to look at this you will need the assistance of a professional adviser.