Posted on 01/11/2018
A key aspect of the role of a financial adviser is to research the marketplace and recommend and review the most appropriate products and services available for their clients – this is no easy task in an ever changing environment. Over recent years, one area that has seen more changes than most is the full self invested personal pension (SIPP) market.
As a result of greater regulatory supervision and increased capital adequacy requirements, there has been considerable consolidation in the SIPP market triggering SIPP providers to make changes to their products and services – but these may not necessarily be for the better.
There are a number of factors that may require advisers to review a product including:
Advisers undertaking product reviews often cite a primary barrier to transferring a product as being the costs involved. Whilst a new provider might offer more competitive fees, promise better levels of service and overall provide more flexible financial solutions, these benefits must be weighed up against the outgoing provider’s exit costs, the new provider’s establishment and transfer fees, as well as the advisers’ own time and costs in effecting the transfer.
However a common asset that often instigates such reviews, and is potentially one of the most costly to transfer, is commercial property.
With a Small Self-Administered Scheme (SSAS), where there is a change of professional administrator or trustee, the property remains an asset of the trust and is simply re-registered. However with a SIPP, the property (and other assets) must be lifted from the trust of one provider and transferred to the trust of the new one.
One unfounded concern in relation to the transfer of a commercial property is Stamp Duty Land Tax (SDLT) (or in Scotland, Land & Buildings Transfer Tax (LBTT)). Despite being a transfer between two separate legal entities, SDLT or LBTT should not apply provided the property remains held for the same underlying beneficial owner. The outgoing SIPP provider will treat the transfer of the property as a disposal and the new provider will similarly have to treat the transfer as an acquisition of a new property into its SIPP asset book.
As a result of their regulatory duties, any new provider will want to assess each asset it accepts into its book. Therefore, even though the property may have been fully assessed and accepted by the ceding SIPP, the new SIPP provider will want to undertake its own assessment and just because one SIPP provider has accepted the property, it does not mean that another will.
For example, some providers will not entertain properties that don’t have a current tenancy, or are in significant rent arrears, or only have a short leasehold term remaining. Other providers may choose not to accept any property that is jointly owned and different approaches are also taken with regard to property development.
The new SIPP provider may also require environmental and other property searches to be undertaken along with checks on the existence of asbestos management plans. An Energy Performance Certificate is also crucial, especially as a result of new rules introduced in April this year, as properties falling into the lower efficiency bands may become difficult or impossible to market unless improvements are made.
For the transfer of a commercial property, the new SIPP provider will apply a property acceptance fee, in addition to its own establishment and transfer fees. Additional fees include the solicitor’s costs, both by the ceding SIPP for the asset disposal and the new provider for its acceptance.
Increasingly the industry is seeing SIPP providers trying to ‘package their propositions’ so administrative functions are carried out under their control. Although this may suit some clients who are busy running their business and do not have time to do it themselves, a premium fee might be payable for this service.
Many clients want the adaptable features of a SIPP such as service and administration and in some cases, the ability to select their own solicitors, valuers and property managers or to self-manage their property. As a result, the resources of the SIPP provider will be used less and the fees payable would reduce accordingly.
Another often-overlooked cost feature that should be considered on a transfer of a commercial property is the ability for clients to self-arrange their property’s insurance however savings from the operator’s block policy can sometimes make the costs associated with a transfer insignificant.
Adviser concerns could, therefore, appear to be legitimate, but that is not to say that cost should be a barrier and that the transfer of a property from one SIPP to another is not a worthwhile consideration. Some providers specialise in this area and are simply more geared to commercial property acquisition and administration than others.
Dentons has seen a consistent stream of commercial property transfers in recent years so advisers must be seeing benefits in this process. The best way for advisers to reduce the costs and administration burden of a transfer is by appropriate due diligence and careful selection of the SIPP provider at outset.