With increasing competition between SIPP operators, answers to these seven questions will help you make the most of your SIPP
As Your SIPP Could Be One Of Your Largest Assets, It's Important To Know Exactly What's Going On "Under The Bonnet"
Ask Your SIPP Operator These Questions
There are many questions you could ask your SIPP operator. Here are seven of the most important questions you should include in your list.
1. How Much Is Your SIPP Operator Charging You?
Pensions providers running all types of pension contracts are notoriously good at hiding charges. And SIPP operators are no different. Even when they’re required to transparently disclose their costs, some SIPP operators fail to be completely up front about the different charges they impose. Many of the full SIPP operators provide a menu of charges, which can run to as many as 20 pages. An experienced actuary would find it a challenge to accurately compare SIPP charges from one SIPP operator with another.
2. Does Your SIPP Operator Impose A Minimum Annual Fee?
In addition to charging you for various aspects of the work they do, some SIPP operators impose a minimum annual fee, enabling you to take advantage of a wide range of investment options. That’s fine if you do exactly that and diversify your holdings. But if your money is invested in a limited range of areas, you could find you’re paying for features you’re not using. And that’s a waste of your money.
3. Is Your SIPP Operator Keeping Some Of The Interest You’re Earning On Your Cash?
Unfortunately, a large number of SIPP operators are guilty of this dubious practice. When challenged, they make all manner of excuses, including “it’s all in the smallprint”. And sometimes, the smallprint is so small you need a microscope to read it. The fact of the matter is simple. If your SIPP operator is collecting a fair and acceptable level of fees, it’s just wrong they are also help themselves to a share your deposit interest too. Interest rates have been so low in recent years, it adds insult to injury if your SIPP operator ends up earning more than you do on your cash.
4. Does Your SIPP Operator Get A Back-Hander From Your Stockmarket Investments?
All types of businesses earn money by referring their clients to other business in return for a commission. Online, it’s known as "referral" or "affiliate" marketing. Some SIPP operators are no different, collecting a share of the fees you pay the platform on which you trade your stockmarket assets. Whilst there’s nothing wrong with this in principle, just like the point above, if you’ve agreed a fee for the service, it doesn’t feel right the SIPP operator is making a bit more on the side. By comparison, accountants and solicitors are required to declare their extra earnings, reducing your fee accordingly. Surely, the right thing for the SIPP operator to do is credit your SIPP Bank Account with the commission it receives. After all, it’s your trading that generated it.
5. How Will Your SIPP Operator Cope With The Regulatory Changes?
In 2012, the Financial Conduct Authority, which regulates SIPP operators, announced it’s likely to require SIPP operators to hold more cash. I wrote about this over a year ago in an article entitled How The Regulator Is Restricting Choice. Unfortunately, the regulator still hasn’t decided how much that’s going to be. Its decision was postponed last year to the end of 2014. It’s causing all sorts of uncertainty, with a number of SIPP operators already having been taken over by larger firms. If your SIPP operator can’t cope with the changes, it could cause you a significant administrative burden if you need to find an alternative SIPP operator. To avoid any nasty shocks, check out the "capital adequacy" position with your own SIPP operator now, even if you’ve been with them for a long time.
6. How Much Is Your SIPP Operator Paying Your Adviser From Your SIPP?
Too many people blindly allow their SIPP operator to pay an adviser on a yearly basis, even though the adviser may be providing little or no service for their fee. It happens so easily. When the adviser sets up the SIPP, they'll often ask you to sign a document authorising the SIPP operator to pay them a fee. In many cases, they also arrange for the SIPP operator to pay them annually, typically 1 per cent of the fund value. Unless the instruction is challenged or cancelled, the SIPP operator will automatically pay the adviser ad infinitum. It’s fine if you’re receiving value for money. But quite frankly, many people are paying for nothing. In the face of rising adviser charges, you should check you’re not throwing your money away.
7. Are Your Investments Performing Well?
Time and again I hear people expressing the wish to change their SIPP operator “because the fund isn’t growing as quickly as I’d like”. That’s just silly, for no SIPP has ever performed badly. It’s ‘self-invested’, so if the investments aren’t growing as quickly as you’d like, the responsibility to improve the returns is entirely down to you. It’s your money, so carry out a review and switch your money to investments that’ll serve you better. As a result of your review, if you decide to invest in asset classes your current SIPP operator does not permit within its SIPP, switch to a SIPP operator that does allow them.
Review Your SIPP With Your SIPP Operator And Your Adviser
Most of us are pretty poor at thoroughly checking our Bank Statements. Having spoken to a number of SIPPclub members, it seems the SIPP Bank Statement is no different. Many are shocked to discover how much they’re paying their SIPP operator and their adviser. If you don’t have the copies to hand, ask your SIPP operator to send you SIPP Bank Statements for the last five years and check it out for yourself.
Obtain from your SIPP operator and your adviser detailed answers to the above questions, and any others that are relevant to your SIPP. Don't forget to ask your SIPP operator to confirm whether it keeps any of the interest earned on your SIPP Bank Account and other investments too.
Armed with the information, run a comparison against the market to ensure you’re not paying over the odds, for the investment classes you're holding. Analyse your returns and check your options to see if you could improve them. Wherever possible, minimise your costs and maximise your growth so your SIPP fund is growing for your benefit, and not for the benefit of others.
Bear in mind, though, it’s not about finding the cheapest SIPP on the market. It’s about finding the best value SIPP that offers all the flexibility to allow you to invest in the different asset classes you want to hold in your SIPP.
Make The Time, For Time Is Money
In the busy lives we lead, it’s so easy to put this off. Be under no illusion, procrastination can cost you a great deal in unnecessary fees and lost investment growth.
The time to do something about it is NOW.
For if you look back on the day you retire, realising you should have done things differently, it’ll be too late to do anything about it!
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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
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