City Trustees - part of Mattioli Woods



News and Media

18 February 2013

Mattioli Woods plc expects SIPP market consolidation over new capital adequacy requirements

City Trustees, which is part Mattioli Woods plc, supports the FSA's desire to create greater security, long-term stability and professionalism around the SIPP market with the enhancement of capital resources. Although as a group, we are in a strong position and ready to meet any potential changes, many are not, and as such the SIPP market will see a major onslaught in the form of consolidation and/or lower cost providers needing to dramatically increase scheme fees.

Group Chief Executive, Ian Mattioli, commented: "I believe we should not underestimate the issues that the market is going to face as a result of these proposals. We believe that many SIPP providers are already trading on thin margins, and those with significant property and non-standard assets will simply not be able to comply with capital adequacy requirements. The battleground is about to commence and I expect a bloodshed scenario with many not surviving".

Not only do firms need to consider their capital position under the proposals, there are additional regulatory expectations from the FSA, with a real focus on systems and controls and structure. This can only increase the cost of those businesses at a time, when they are unable to see how they can raise the capital required.

Group Operations Director, Mark Smith, added: "The business model adopted by many low-cost SIPP providers, whereby they effectively write business as cheaply as possible and also accept the more esoteric type assets, is now coming back to bite them. Surely providers that administer significant SIPP assets which can run into billions, cannot realistically expect to carry just six weeks of operating expenses, and if they do, then 'titanic' and 'iceberg' are two words that spring to mind".

As a result of the proposals, scheme fees for small operators are likely to significantly increase and, due to the fact that commercial property is deemed to be a non-standard asset and therefore higher levels of capital will need to be held for these types of schemes, many firms will simply have to turn away business.

Mark continued; "With the benefit of our experience on matters such as Freedom SIPP and Pilgrim SIPP, a lot of firms are simply burying their heads in the sand and are just not accepting that the issues providers have experienced with these failures are driving FSA policy".

Mattioli Woods plc plans to respond to the FSA paper supporting some of the proposed initiatives, particularly around capital requirements, and what they are deeming to be non-standard assets, which it is looking at on a client-by-client basis, rather than solely on assets under administration.

 

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