Sipp and SSAS provider Xafinity is urging advisers to factor in the possibility of their provider exiting the Sipp market after Capita decided to quit Sipp administration. Xafinity says advisers should include in their due diligence a risk rating based on the possibility of their chosen provider exiting the self invested pensions market in the coming 18 months.
The company says that the exit of Capita, a major Sipps and SSAS administrator, highlights that the increasing costs of regulation and the likely capital adequacy requirements, due to be announced next year, may be prohibitive for many Sipp providers.
Most advisers already have stringent due diligence processes in place, but Xafinity is recommending that they pay particular attention to the specific risk of their chosen providers exiting the market.
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Each provider exit creates great uncertainty for the clients involved, says Xafinity, and while it potentially reflects poorly on advisers, it also gives rise to the costs of reorganising existing administration which advisers and clients could do without.
Jeff Steedman, Sipp and SSAS business development manager at Xafinity, said: "The shape of the Sipp market is likely to be quite different in two years' time and we wouldn't be surprised to see other high profile names follow Capita's example.
"We would urge advisers to increase their due diligence for new business as some Sipp providers will try to hold out until the last minute and this could end up compromising the adviser's relationship with their client if the resultant closure, sale or merger is not handled well. A regular review of all existing Sipps should also be on the adviser's agenda for 2014."
In November, Capita told shareholders it plans to sell off its Sipp administration business due to losses. The company says the division operates in an "increasingly competitive and highly regulated market" and is loss making. Up to 350 jobs will be affected in Salisbury.