Larger Self-Invested Personal Pensions (SIPP) are likely to feel the force of the Financial Services Authority's (FSA) thematic review of small SIPP providers, warns Mattioli Woods.

The thematic review of SIPP operators, which began in December 2008, highlighted concerns over the lack of management information within firms to embed Treating Customers Fairly (TCF) principles, and the undertaking of responsibility to ensure the quality of SIPP business.
The FSA determined that this is unacceptable as it leads to these providers failing to ensure the suitability of SIPPs to their consumers because advice may be given by another intermediary, such as an Independent Financial Adviser (IFA).

The regulator also identified deficiencies in some firms' systems and controls, in particular when it comes to training and competence, as well as concerns over the transparency of illustrations and disclosure of charges.

Murray Smith, marketing and sales director at pensions consultancy Mattioli Woods, said: "Some firms may need to build a more intense and robust infrastructure around their operations to enable the gathering of better management information, its analysis, and the means to act upon it. The FSA suggests far greater client contact is needed to assess issues like product suitability. This could certainly serve to increase costs, putting a strain on smaller operators, leading to consolidation within the sector and not in the interest of the consumer."

Smith believes, however, that despite the review being aimed at smaller firms, it is likely to have a "dramatic impact" for larger operators. "However significant resources could be absorbed by compliance, the costs of which may be passed on to the consumer. Greater transparency around the disclosure of charges would though make cost comparisons within the market-place easier to identify for consumers and their advisers."

He said the FSA's view that SIPP operators should take on responsibility to ensure appropriate distribution of products could leave them exposed to the fall-out from mis-selling, "particularly where SIPP growth has been achieved because SIPPs are 'flavour of the month'.

"This begs the question, why has the FSA never placed the same responsibility on fund managers to ensure that their funds are suitable for their consumer, leaving the responsibility with the adviser?"

Bob Woods, chairman of Mattioli Woods, added: "Mattioli Woods believes the fundamental essence behind the concept of SIPPs is absolutely right, offering consumers a level of control, flexibility and diversification that is essential in pension planning, provided consumers are supported with appropriate advice and guidance."

He said the review will add further credibility to what will be a strong growth market.

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