FSA may ban DFMs paying for SIPP space

The Financial Services Authority (FSA) may ban the practice of discretionary fund managers (DFMs) paying SIPP providers for inclusion on their platform, Defaqto warns.

Defaqto analyst Andy Leggett said the recent platform paper from the FSA and the earlier consultation on SIPP disclosure CP 11/03 both point to a ban on the practice.

"Although [the platform paper] dealt specifically with the platforms industry, there is a natural read-across to SIPPs," Leggett said.

"SIPP providers will have to look at the sources of their revenue streams, and SIPP pricing is likely to have to change as a result."

Leggett said the arrangement where SIPP providers supplement their main income generated from pension administration fees with charges to DFMs "sits poorly with the FSA's approach to the retail distribution review (RDR)".

This is because the income stream from DFMs helps SIPP providers bring down the headline charges to investors, which Leggett said is not compatible with the FSA's emphasis on simple, transparent charging structures.

"The parallel with cash rebates is there and it will be interesting to see whether the FSA chooses to take action on this," said Leggett.

In May, the FSA published its consultation paper CP 11/03, in which it proposed more and better disclosure of the charges within SIPPs in order to make the products easier to compare.

SIPP operators warned a single template for disclosing charges would be impossible due to the variety of SIPP structures on the market.

They claimed if disclosure requirements were too stringent SIPPs would have no choice but to increase charges.

Martin Tilley, sales and marketing director at Dentons (pictured), said DFMs paying for SIPP space is "absolutely scandalous".

"A SIPP provider ought to be able to accept any DFM without any gain or bias

John Moret, director of More To SIPPs, said: "Banning cash rebates would probably destroy several SIPP businesses.

"On fees generally my concern is that there are only a limited number of profitable SIPP providers and I do not believe many are 'profiteering' through rebates and the like although there are exceptions.

"By all means push for greater clarity and harder disclosure but do not throw the baby out with the bath water."