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Comment: Salisbury, Sipps and a return to the golden age?

The self-invested pension capital may be living on past glory, but the market itself is still open to entrepreneurial firms with experienced staff

Comment: Salisbury, Sipps and a return to the golden age?

Disturbing recent developments in Salisbury, and the proposed floats of businesses with many Sipp clients, has led me to recall when Salisbury was the centre of the Sipp world.

We are talking of the years shortly before and after the new millennium. The Sipp world was dominated by two providers: James Hay and Personal Pension Management (PPM). Both operated in or close to Castle Street in Salisbury, which is at the centre of the current police investigation. It was also where Friends Life had one of its headquarters.

Fifteen years ago there were only around 75,000 Sipps. PPM and James Hay administered around 60% of them. There were a few other small providers, but no provider of scale. AJ Bell’s platform was still in its infancy, the Hargreaves Lansdown marketing machine had not discovered Sipps and most of the other platforms that now dominate the Sipp market were still in the design phase.

Looking back, the opportunities for PPM and James Hay, given the way the market has grown, were enormous. A merger of the two companies, planned by a private equity company, was in the works. In hindsight, had this taken place, the whole Sipp market might have taken a different course.

End of an era

Visit Castle Street today and the main Friends Life building is being converted into later life accommodation, while the PPM building lies empty. Only the James Hay offices, just off the street, still operate. The offshoot of James Hay that became Rowanmoor is still present in Castle Street. But it exists as part of the Embark stable, following its sale in 2016.

PPM was brought to its knees by a failed IT project and huge legacy issues (sound familiar?) with its parent company’s Sipp book.

Having almost been bought out by management in 2001 it was sold in 2004 to a buyer that did not understand Sipp business. After a long and painful decline, the business was closed. Most of the existing book was sold to James Hay in 2014.
James Hay also suffered as a result of changing ownership and uncertain IT plans. But, following its acquisition by the IFG Group in 2010 and its subsequent integration with the IPS partnership, it has enjoyed a period of relative stability and growth.

Entrepreneurial Spark

This is partly through acquisition of other Sipp books. However, legacy issues remain. This is clear from IFG’s recent statements regarding the holding, by a number of James Hay Sipps, of investments in a biofuel scheme.

To succeed in the Sipp market, a robust and scalable IT platform is a must. The only exceptions are smaller Sipp operators focused on the bespoke end of the market, provided they have realistic limits on their future growth.

Technology platforms will become increasingly important as more Sipps move into the decumulation phase, and as the technology demands and expectations of Sipp clients increase.

The effect of legacy issues is likely to become even more significant in the future. The evolution of Sipp regulation, and the increasing trend of retrospective action, may lead to the demise of a number of Sipp businesses.

Acquiring and consolidating Sipp businesses does not appear a shortcut to profitable growth. The demands and costs of integration are invariably underestimated.

Access to good quality and experienced Sipp managers and staff remains important. Independent and entrepreneurial ownership still appears to provide the most likely route to a successful Sipp business.

One of my conclusions from the recent Financial Conduct Authority discussion paper on non-workplace pensions is a redefinition of what constitutes a Sipp would be a highly desirable outcome. It would lighten the regulatory burden for Sipps that do not hold any ‘non-standard’ investments.

That might even imply a return to the old ‘permitted investments’ regime that applied up to 2006. But this is unlikely to be accompanied by Salisbury regaining its position as the centre of Sipp provision.

 John Moret is principal at MoretoSIPPs.

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