A single investment portfolio client

Anne is a self-employed media consultant who specialises in the field of biotechnology. Over the years, she has accumulated a significant pension fund as result of maximising pension contributions as and when she was able to, and with the help of Kate, her financial adviser.

Kate has guided Anne through the complexities of the annual allowance, carry forward and the tapered annual allowance, as well as providing sound investment advice. Until recently, Anne’s investment needs have been met through a traditional life office personal pension (PP) but Kate now feels that Anne’s pension fund value of £425,000, and her desire for wider investment choice, warrants a switch to a self invested personal pension (SIPP). Kate works closely with a favoured discretionary fund management group and access to that group cannot be achieved through Anne’s PP.

Kate’s research into the market reveals that the fund manager’s proposition is available through a range of different SIPP providers’ SIPP contracts. It has also revealed that the charging structures of these can vary quite markedly from one provider to another. In selecting a provider, Kate is also mindful that Anne values personal service very highly and has never believed that “cheap and cheerful” represents good value for money in the end; Anne is a believer in “buy cheap, pay twice.”

Kate has calculated that a fund size of £425,000 can lend itself very well to a flat-fee SIPP charging structure as opposed to a basis points one where the SIPP fees are calculated as a percentage of the accumulated fund value. Kate recognises that the SIPP provider’s administration work can be largely the same regardless of the amount of money that sits in a single investment portfolio within the SIPP and she suggests to Anne that she considers switching to a provider that adopts that principle to its charging structure.

To put the potential charges into context, Kate outlines to Anne in numerical terms the difference in ongoing annual administration SIPP fees between two different charging structures she has researched – 

Basis points SIPP charging structure 

• 0.25% of the fund value, subject to a maximum fee of £1,000 plus VAT per annum.  
• (equating to a fee of £1,062.50 capped to £1,000 plus VAT per annum)

Flat fee SIPP charging structure 

• £450 plus VAT per annum 

Anne is pleasantly surprised to see that, in pounds and pence terms, the flat fee charging structure offers significant savings based on her specific circumstances. In her mind, she hadn’t really made the conversion of a percentage charge into a monetary figure and carried-out a comparison.

However, given Anne’s views about “cheap and cheerful” products / services, she challenges Kate about the likely levels of service that might come with a very cost-effective product such as the flat fee SIPP. Kate has pre-empted this and has prepared for Anne’s questions.

Kate’s recommendation and some justification reasons

Kate recommends that Anne switches to a SIPP contract that operates a flat-fee charging structure and which offers access to her preferred fund manager. In doing so, Anne achieves her objective of accessing a wider investment universe than she has currently and she can follow Kate’s recommendation that the time is right to have a dedicated discretionary manager looking after her fund.

Kate stresses that the SIPP provider she has selected has impeccable service credentials and that it delivers industry-leading and multi-award winning levels of personal service to its clients. Kate explains that, in her opinion, consistently winning awards for service in independent polls of advisers is a more reliable measure of service quality than simply assessing a provider’s performance against its own turnaround standards.

Kate points out to Anne that there are cheaper contracts than her recommended one available in the SIPP market but that her due diligence work has revealed that some providers of very low cost SIPPs have failed in the recent past because of unsustainable business models (amongst other things). Kate explains that, although regulatory capital adequacy measures exist to deal with an orderly wind-up of a SIPP provider in the event of its failure, such a failure could mean significant disruption for Anne and her recommended provider is amongst the least likely in the industry to be beset by this, because of its business model.