New advice opportunities in multi-member SIPPs with shared investments
Increasingly, established professional firms are reviewing their pension arrangements, switching to new SIPPs and transferring commercial property from legacy plans. This is an opportunity for advisers says Nigel Bennett, sales and marketing director at InvestAcc
Just like buses, you don’t see one for a while and then along come several at once! It certainly feels that way, with a spike in enquiries for multi member SIPP arrangements, where a review of their existing scheme has led them to consider whether it remains fit for purpose.
I find that each of these schemes started out as a smallish group of between two and six ‘founding partners’, perhaps as long as 20 years ago, there is now a larger group with a mixture of working and retired members, each with a different share of a property, and occasionally more than one SIPP provider is involved. There may still be a mortgage in place, although typically it will have been repaid some time ago.
The common themes are:
• The scheme will have grown to have eight or more members
• The professional firm will be solicitors, accountants, barristers or architects
• Some members may be about to retire, with new ones joining
• The current scheme is with a legacy provider that has service issues
• One member of the scheme has been appointed to ‘deal with’ the scheme, perhaps many years ago, to act as the link between the members, the SIPP provider and a financial adviser
• Decisions may have been made along the way to accommodate individuals, perhaps allowing them to own a smaller share of the property or to own some personally; in some cases these individuals will have left the business and may now be working for a competitor firm.
So, why are these all coming along now? The answer is likely to be simply a reflection of what has happened with the SIPP market over the last few years, the service issues that some providers face (or a change in strategy at some firms), and a new generation of talent coming through in professional firms. Over time, straightforward structures tend to evolve towards increasing complexity.
It is true that these schemes don’t tend to be moved from provider to provider with any great frequency, the costs and hassle of doing so make that a bad idea; it usually takes a major event to occur, or the latest in a series of smaller ones, to trigger a review of the scheme.
In many cases, the benefits of reviewing the arrangements can be:
• A possible move to a new provider that offers the required balance of service, costs and financial strength
• The chance to take into account changes in circumstances
• Transactions can be arranged between old and new members (typically one SIPP selling to another, on commercial terms)
• The chance to revisit or put in place a Declaration of Trust (for properties in England and Wales), dealing with issues such as pre-emption rights. Many older schemes are lacking in this respect, dealing with them on a less formal basis, which can cause difficulties when a member retires, is in ill health, dies or gets divorced.
The main downsides of switching provider will be costs and timescale, with a property there are always various charges and fees to consider and sometimes these transactions can take a long time; some SIPP operators will levy a transfer out fee / penalty, which can be substantial. If there is an existing mortgage, then if this is to continue it may not be possible to mirror the terms when switching to a new provider. If the property is in Scotland then the transfer may be subject to Land & Buildings Transaction Tax, which may make it unattractive to switch providers, although we await more guidance from Revenue Scotland on this issue.
What about SSAS?
SSAS arrangements tend to work best for smaller groups, the main consideration being that there is one common investment pool and that all decisions have to be by unanimous agreement, which gets more difficult the more members you have. Whilst earmarking of certain investments may help, it does not avoid the need for all members to agree. Also, a new SSAS will take several weeks to establish, which can be an issue when time is tight (perhaps because the existing scheme annual review is due shortly, with members committed for a further year of fees). Finally, there is usually a limit of 11 members in a SSAS, which can therefore limit potential future growth of the membership.
Fit for purpose
For those cases where the costs of switching provider are worthwhile, there can be numerous other benefits. Administration and service can be subjective, although they are often stated as reasons for the switch, so this will be a very important aspect to consider when selecting a new provider.
Putting a Declaration of Trust in place, or some other agreement, can provide much needed structure. At the same time, any financial security concerns can be addressed; it is often new members who may be more inclined to ask searching questions about the existing scheme provider.
How does an adviser fit in?
An adviser will research the market and assess suitability, whilst also dealing with other issues such as lifetime allowance planning, contributions allowances, investment suitability, exit strategy, and whether there are any protection needs.
Partners in professional firms may be reluctant to divulge completely their personal information to other members of the group. So in addition to their normal role, an adviser can also act as a facilitator. We do find that some firms may limit their advice requirements specifically to this transaction; if it goes well then it can be a foot in the door for the adviser.