Ten due diligence hurdles your SIPP provider must clear

Advisers need to be sure they are entrusting their clients’ SIPP funds to the right partners. Andy Leggett says there are some important questions to ask and there need to be convincing, evidenced reasons before any boxes are ticked.

Financially sound?

This means strong, not big. Capital adequacy requirements are expected to be moved on to a consistent basis across providers and may rise for all. Does the provider have access to sources of funding?

Profitable?

A durable proposition is a profitable one. Can the provider demonstrate consistent profitability over a number of years? Is their positive cash-flow? Can they afford to continue investing in technology?

Committed?

Is the provider posting steady growth figures for number of plans currently administered and assets under administration? Poor growth could indicate an out-of-date proposition or poor service; excessive growth will place different strains on the business.

RDR robust?

Is the provider over-reliant on revenue from sources that may be at risk? Revenue shares with platforms, bank interest turn, fees to be on panels and more will come under FSA scrutiny. The Platforms Policy Paper shows they are prepared to take a tough stance.

Trusted service?

What do your peers say based on actual, recent experience? Does the provider have an independent rating based on objective criteria? Will the provider commit to a service charter and share actual performance or headline complaints stats from their FSA returns?

Supportive technology?

Technology is - or should be - revolutionising SIPPs, just like so many things in life. It should be delivering fast, reliable, web 2.0 admin including data, illustrations, applications, valuations, money movement and dealing. Does it integrate with back-office or platforms?

Right partners?

The right SIPP provider partner will also weave in your chosen partners for banking, dealing, platforms, investment management and property. A bankrupt broker or an inefficient platform, say, can cost your client financially or ruin a client/adviser relationship.

Adaptable?

Will the provider maintain relevant features and services in this dynamic market? Do they have a record of adapting to change? Examples might include self-investing protected rights, providing efficient access to platforms and DFMs, permitting ETFs and introducing flexible drawdown.

Compliant?

Does the provider help you decide where the limits of flexibility are? Do they ask questions - for instance, to vet investments - and do they ever say no? FSA over-sight and the regulatory burden are expected to grow - your provider mustn't buckle.

Transparent?

How readily available was the information you sought? Are key people accessible? How easy was this process? Expect the bar on disclosure to be raised.

More information on selecting the right SIPP provider and product is contained in Defaqto's SIPP Guide.
In addition, Defaqto's Star Ratings for SIPPs help advisers understand the overall level of features and benefits offered by all SIPPs on the market. Taking a wide range of features and benefits into account, Defaqto has given each a rating from 1 to 5 depending on how comprehensive they are. Star Ratings aim to support advisers' recommendations and allow them to understand where a product sits within the wider market. Advisers can visit www.defaqto.com/star-ratings/sipps to access this year's ratings for SIPPs.

Andy Leggett is insight analyst for wealth management at Defaqto