The ‘self invested’ bit of a self invested personal pension is a slightly misleading, as a Sipp doesn’t necessarily have to be invested by the investor his or herself.
In fact a multitude of organisations would suggest that the pension is better off invested by someone else, by an adviser, stockbroker, discretionary manager or other professional who invests for a living.
“The side of the debate that I sit on is that self-management does open up the issue of investors not fully understanding what goes into the Sipp and making the wrong investment decision,” comments John Monaghan, a discretionary manager at Origen.
Of course the management of the money that will keep you going through your retirement is a responsibility. A pension is not the ‘fun money’ which you can take risks with, or afford to make the wrong decisions over.
Andy Bell, the MD of Sippdeal, the provider of execution only Sipps, and Sippcentre, which allows customers to set up a Sipp which they take advice on, confesses to having got excited about running his own Sipp. He warns against the over-optimistic approach, starting off with a lot of enthusiasm and time, which then wanes.
“Don’t bite off more than you can chew,” he says. “What I realised is it is a full time job. For the man in the street to start thinking that he can compete on managing his Sipp with the professionals that do it all the time is optimistic.”
Client control counts
However the managing yourself what actually goes into your pension fund can have an upside, says Monaghan: “When you individually manage the Sipp you have control and historically pension fund from insurers may not have provided the most dynamic vehicles,” he says.Having a Sipp gives more choice than most pensions do, and self management equals control over what goes in – and there is a vast range of choices there now. Just as taking control from traditional pension providers can be tempting, so too can the control over any other potential relationships around the Sipp.
“People might have lost faith with insurance company and fund management company products or they could have had bad experiences with IFAs,” says Bell. “The internet allows them to take control of their own finances.”
Equally though, a pension investor might have a particularly good relationship with his adviser, trust their judgement on what goes into the pension fund, and be glad not to have the responsibility for it themselves: “If you do it yourself and things go wrong at least you don’t sit stewing in your own juice, thinking: ‘so and so is to blame for this,’” says Bell.
Execution-only excitement
According to Michael Faulkes, chief operating officer at online broker TDWaterhouse, the reasons for investing your own Sipp are threefold.
Firstly the choice of what you can put into your Sipp is wider than it ever has been. “It’s a receptacle which you can put anything into,” comments Faulkes. For particularly sophisticated self investors derivative instruments such as CFDs and futures and options can be used inside a Sipp to add another dimension to the portfolio.
Secondly, execution-only is cheaper than a managed or advised Sipp, says Faulkes. The TD Waterhouse Sipp, for example, charges an £80 initial set-up fee, an admin charge of 0.25pc of the value of the SIPP twice per year (from £50 to £250) and then various other fees depending on what you do.
Transferring out stock is £15 per holding for example, transferring it in is free. With Sippdeal set up cost is and £100, although this is currently waived until the end of October, annual administration is free and transfers in from another scheme are £50.
Thirdly, Faulkes points out, the investor has access to more information now than ever before. “As part of the experience you are getting access to fantastic sources of information,” he comments.
All online Sipp providers include a range of data in their packages and in fact the range of information investors can access from a number of places is now vast, with online and other resources offering in some cases the same level of information as the managers can get, points out Bell.
Other options?
Sipps do allow for having an advised account, but that doesn’t mean the advice actually has to be taken. “With Sippcentre you have to set it up through an IFA and then you have options,” explains Bell. “You can have your IFA recommend funds etc. and you can buy them or not.”
The discretionary management option is the third way with Sipps. A discretionary account means that the control is handed over entirely to a manager. Even within this category there are different shades.
A broker at somewhere like Cazenove or Williams de Broe might manage a whole portfolio based on one risk-reward profile very specific to the individual.
The average portfolio size there is an average of £200,000 to £250,000 points out Bell, partly because the charges are such that a smaller portfolio would be eaten up with the charges and partly because the discretionary manager needs a portfolio large enough to achieve appropriate diversification.
Perhaps a less expensive way of accessing discretionary management is through model portfolios such as those used at Origen. “Managing your own portfolio is a lot of work and our selling point in terms of discretionary management is that we run model portfolios across the risk range,” says Monaghan.
It would seem that at the moment the advised option is prevalent. “The TDWaterhouse Sipp has been slow to populate with people that have learnt about this,” says Faulkes.
They are also of a very particular type, he adds. “They are fairly professional, well educated people with a reasonable degree of acumen. And in our terms they are higher value accounts where you see more of a thoughtful buy and hold approach.”
Bell is finding that as time post A-Day progresses more people are realising that they value help with their portfolios. “The misconception is that people associate Sipps with DIY,” he says. “Part of the Sipp market is DIY, but an ever-increasing part is advised.”