Is the Sipp market at risk of unravelling? That is the question on the minds of some industry watchers who wonder if the sector can sustain the estimated 75-plus players offering in the region of 120 Self Invested Personal Pension plans invested in £100 billion of assets.
The market has remained fairly steady in terms of provider numbers and product offerings in the last year, with few entrances and exits of players or wildly exciting launches. But this suggests that the market is now ripe for change in the near future, according to Matt Ward of research analysts Defaqto. Mr Ward said: "We believe there will be consolidation in this market in the coming months as there is not enough business to feed all these mouths."
Along with merger and acquisition activity he also expects there to be new product launches - but only once providers have overcome the long and pressing (and in some cases costly) list of demands currently facing them. These include preparing for January's Retail Distribution Review changes, meeting the new (as yet undefined) capital adequacy requirements, sorting out their IT systems to deal with the new regime for providing investment illustrations, plus dealing with any impact of the Financial Services Authority's papers on platforms and rebates and the clamp down on widespread selling of unregulated esoteric investments. Mr Ward said: "Once this is all out of the way there may be new propositions."
The advantage of such a wide field of players is that Financial Planners and their clients have been enjoying the fruits of competition, with charges sliding over the last few years, especially on the lower level, platform-driven Sipp ranges. But providers can only cut charges so far, with the cost of regulatory changes and tough competition putting the finances of many between a rock and a hard place.
However, charges may have now reached their nadir. Mr Ward said: "Set up and annual charges have come down over the last five years but they can't go down much further. In fact they may go the other way. Only the low-cost Sipps sold through platforms really have the scope to cut costs." But how important are charges for Financial Planners weighing up which Sipps to pick?

James Norton CFP^CM of Evolve Financial Planning, said: "They are not the be-all-and-end-all but they are important. We use passive funds for investors so the cost is a very important part of the offering but client service and administration services are also important. We use Standard Life and AXA Elevate, although the latter for personal pensions." Mr Norton believes no Sipp provider is perfect and all have things to learn. He said: "The ones who focus on technology and use platforms appeal most. The less manual intervention required the better."
Mushtag Jaigirdar of advisers Yellowtail agrees that cost is not everything. He said: "There's more to it. Choices are driven by clients' circumstances. Not all Sipps provide the same level of flexibility. Certainly some won't allow unquoted shares, for example, so that will drive which provider we choose. They're not suitable for all clients, only for those with £100,000 or more to invest. They give you a wider investment choice and there are also a few more retirement options, although it is possible to wait and transfer to a Sipp at the point the benefits are required."
For his firm, the service provided is as important as charges in terms of client priorities. He said: "Technology has moved on and we have found the service has improved. We put the average client into AJ Bell's Sippcentre Sipp, which we've used for a few years and it offers quite good service. It's simple and cost-effective. For clients who want to add commercial property, Sippcentre facilitates it although it's not part of the core offering. We've used them for this and they were efficient. For more esoteric investments we use Sipp administrators Talbot & Muir. We like them because their plan offers a 'scheme pension', which gives our clients the potential to take a higher income when they want to draw their benefits than with capped drawdown."
One side effect of RDR that Mr Jaigirdar has noticed filtering through is that some Sipp providers are introducing new charges, such as custody charges for Financial Planners and clients using their platforms to hold their Sipps, which he believes are providers' way of making up for the old fees paid by investment companies that will be outlawed from January.
Philip Challinor CFP^CM of Chatfield Private Clients, whose firm uses Barnett Waddingham for full- blown Sipps and Sippcentre for mainstream clients because of its low charges, said: "We prefer low- cost index-tracking investments which don't require an expensive plan. In fact many people don't even require Sipps."

Mr Challinor also rates service as an essential attribute for a Sipp. He has had several new clients who already hold tailor-made Sipps from other providers coming to him "pulling their hair out" over the administrative hassles they have had. He said: "You get what you pay for. We pay a bit more for Barnett Waddingham but the service is good. They have lots of experience and think about what they're doing rather than ticking a box. If a client wants agricultural land in their Sipp we know everything will be done properly with them."
Providers are increasingly conscious of the service needs generally of Financial Planners and their clients but also believe price is important. Billy Mackay, marketing director of A J Bell, said: "We do research with advisers every year and cost and value for money have come top for the last three years. Ease of use and a comprehensive range of investments is also important."
He believes that once the capital adequacy rule changes are in place (which may extend the current minimum of at least six weeks of annual expenditure to as much as two years' worth) that this will spark more consolidation activity in the market. Hinting that AJ Bell may take a cautious look at acquisitions, he said: "Buying a firm would depend on the quality of the records kept and their investments. If we considered buying a small firm we would have to look at the underlying book and check for any tax consequences for the clients and us. They tend to have a wider range of investments plus their business models would be different and more complicated."
Meanwhile Mr Mackay says his firm is ready for RDR and is responding to everything the impending changes throw its way. He said: "Sippcentre has to evolve. The fund groups are all looking at their share classes, for example, and as a provider we have to embrace that. It's not too difficult for us as we have the benefit of having a stockbroking business in our set up."
Rupert Curtis, managing director of Sipp provider Curtis Banks, which has 4,000 Sipp clients, also believes there will be consolidation when it becomes clear that some will not survive the new capital adequacy rules. He said: "It's a buyer's market with the cleaner providers likely to be snapped up but others might struggle."
As for RDR, he suggests his firm is also ready. He said: "A report came out recently that said more than half of Sipp providers weren't ready but it's not that difficult as most Sipps have not been sold on commission."
Mr Banks is wary of the esoteric investments that some providers are still accepting into their plans. He said: "We are very strict and don't do things like hotel rooms and are dubious about ecoinvestments. There are some providers accepting them without too many concerns, which I find worrying."

Charging is an issue, he concedes. He said: "There are cheaper Sipps out there but we wonder how people make money on them. What's important is service, having good systems in place and being robust. We're very positive about the future and feel we're in a good place and are growing strongly. Our total assets under management are £800 million and they will be over £1 billion next year."
Chris Jones, marketing manager at Sipp provider Suffolk Life, also believes that Financial Planners and clients are more interested in securing a provider that can offer service and stability than getting bargain basement prices. He said: "I think there may be a bit less emphasis on charging now. In the past it seemed to be driven by who was the cheapest. You want to know that when you come to draw from your Sipp, say in 20 years time, that your Sipp provider is still going to be around. Financial Planners look for providers that are profitable and have a track record. They don't just look at price. They want to know that a provider has investment in its own business and systems and that they have got robust risk management and governance and infrastructure in place."
With that in mind Defaqto offers a 'Guide to Sipps' for Financial Planners, which includes tips on carrying out due diligence. For example, for planners looking for Sipps for clients who want more esoteric investments, or even commercial property which is these days considered a relatively mainstream Sipp investment, Mr Ward warned: "While this type of Sipp can open opportunities for clients, it can also open risks, such as taxable property and tangible moveable property. So while a provider may be open to consider anything, it certainly should not accept everything. It is therefore worth asking what screening process, if any, the provider has, for example, for rent arrears to be pursued vigorously." He added that Financial Planners should also check providers' credentials in other specialist areas such as unquoted shares and contracts for difference."
Suffolk Life, among others, is conscious of this increasing need for information in the due diligence process and so publishes a factsheet on its website for planners wanting to know more about how the company meets the various requirements.
And Mr Jones, like Mr Curtis, believes RDR is not an issue for Sipp providers. He said: "Most don't pay commission and already support adviser charging. We are making sure we comply with disclosure on charges and are adjusting our systems to support this. We are also working on the investment illustrations side of things which is coming in at the same time as RDR.
"Many providers will be working on this at the moment either themselves or getting their IT suppliers to do it."
Mr Jones believes it will inevitably be the smaller Sipp companies, or at least those with the fewest plans under management, that will struggle most with all the regulatory changes facing them in the coming year. He said: "Word in the industry is that a number of organisations are wondering whether they want to be in Sipps any more, especially those for whom it is a peripheral business."
But the pace of change is unlikely to shake the market dramatically, Mr Jones suggested. He added: "We're expecting consolidation but not a sudden collapse in the market."