SIPP, Hargreaves Lansdown and Funds

moneytroll

Dunston:
"There is no denying that SIPPs (hybrid or full) will offer the widest range. However, if the funds you want are available on the PPP, then it should be investigated as it could be cheaper and easier."

Not sure about the "easier" bit in the very long-term though, since the appetite for different funds might change. From the practical point of view, if you set up a PP with certain funds, then you discover that there's this one particular fund you would like to invest into but it's not available via your PP provider, so are you then supposed to set up a separate SIPP just for that one fund? With Sipps, it's nice to have all the variety of different funds under one roof.
However, it's important to bear in mind that over 30 years, the difference in charges between SIPPs and ppps could amount to as much as 100k or even above, if all else is equal. (depending on the amount of contributions)
However, the wide variety of funds available thorugh SIPPs which focuses on certain sectors could prove better performers by far than the general selection of PPPs, so this extra 0.25% or whatever wouldn't be such an issue So yes, funds through SIPPs could be better option, but not necesserily. (This discussion is going in circles a bit).

Would hybrid Sipps actually provide the best or worst of both worlds? (eg, less variety of funds, and higher, but less transparent charges? ;-)

I think if PP companies could majorly improve on the variety of funds they offer, SIPPs would be obsolete. On the other hand, PPs charging structure is not very clear and it keeps me wondering what the actual TER of pps is, since some deductions of PPs seem to be quite independent of their advertised amcs... Big grey area...

dunstonh

Not sure about the "easier" bit in the very long-term though, since the appetite for different funds might change. From the practical point of view, if you set up a PP with certain funds, then you discover that there's this one particular fund you would like to invest into but it's not available via your PP provider, so are you then supposed to set up a separate SIPP just for that one fund?

Personal pensions have direct investment and no cash fund to worry about. Most of the mainstream PPP providers will allow auto switching to SIPP terms within their current contract. So, when you want to use insured funds you use a PPP until such time you use an external fund.

With Sipps, it's nice to have all the variety of different funds under one roof.

Yes, its nice to have 800 odd funds available. How many are you going to use though? The better personal pensions offer in excess of 100 funds now.

Would hybrid Sipps actually provide the best or worst of both worlds? (eg, less variety of funds, and higher, but less transparent charges? ;-)

I think the hybrid SIPP is excellent. Indeed, I have chosen a hybrid SIPP for my own pension and have just started the transfer paperwork for it.

No charges on the wrapper. Only charges are the fund charges. Whilst the provider I have chosen is not the cheapest, they do not charge anything on switches (no difference in bid/offer spread) and they do automatic annual rebalancing free of charge. There are over 800 funds with this fund supermarket. It is almost identical as buying an ISA through a fund supermarket.

I think if PP companies could majorly improve on the variety of funds they offer, SIPPs would be obsolete. On the other hand, PPs charging structure is not very clear and it keeps me wondering what the actual TER of pps is, since some deductions of PPs seem to be quite independent of their advertised amcs... Big grey area...

I think this is where the hybrid SIPPs will come in. Technically, they are personal pensions so have the benefits of the personal pension trusts and rules but invest directly into unit trust funds (rather than insured funds) which is where most SIPP investors stick their money. If the concept takes off, I think you will end up with the stakeholder pension, the fund supermarket personal pension (hybrid SIPP) and the full SIPP.

moneytroll

Thanks a lot for your comments (which are always appreciated!)
Few confusing things (as usual ;(

"There are over 800 funds with this fund supermarket. It is almost identical as buying an ISA through a fund supermarket."

But isn't using a SIPP via a fund supermarket already EXACTLY like buying ISAs? (Through HL, I see no difference at all. You choose the same funds, either through an ISA or SIPP wrapper without paying for either wrappers. Would you call the HL sipp a hybrid?)

If I am mistaken, could you possibly post which hybrid sipp provider you used? I would like to check them out to compare with my current provider.

What is an "insured" fund? Could you please explain in greater detail what benefit one would gain from an insured fund, over a normal UT/OEIC fund? Would you be able to receive advice/risk profile assessment on the hybrids? (if yes, at the same cost?)

What bothers me personally in PPs is their ability to present the charges in a rather annoying way (somewhat concealed) so you have to do quite a bit of calculations yourself to work out the exact TER. (This is where i prefer SIPPs)

Many thanks

dunstonh

But isn't using a SIPP via a fund supermarket already EXACTLY like buying ISAs? (Through HL, I see no difference at all. You choose the same funds, either through an ISA or SIPP wrapper without paying for either wrappers. Would you call the HL sipp a hybrid?)

OK, its exactly the same. I havent looked at the HL SIPP in any real detail but my understanding of it is that they do have a second tier of charges for other services which are not present on the hybrid SIPP.

You also have to look at the SIPP and realise that HL are keeping the renewal commission. The hybrid SIPP is aimed at the advisor (indeed currently you can only get them via IFAs) and on new model basis, that would incur an initial charge of 1%. So, this makes the price difference between the advice model on a regulated product that allows protected rights only 1%.

If I am mistaken, could you possibly post which hybrid sipp provider you used? I would like to check them out to compare with my current provider.

I am using Selestia.

What is an "insured" fund? Could you please explain in greater detail what benefit one would gain from an insured fund, over a normal UT/OEIC fund?

pension funds are called insured funds. So, if you bought the Invesco Perpertual Income fund through Clerical Medical on their personal pension you would actually be buying the "clerical medical invesco perpetual high income fund". If you buy the fund on a SIPP, you are buying the unit trust fund. The differences are not as great as they used to be and in the scheme of things the only thing the consumer needs to worry about are the charges.

Would you be able to receive advice/risk profile assessment on the hybrids? (if yes, at the same cost?)

As they hybrids are aimed at the advice model then risk/assessment advice is part of it. The cost of the advice model is at the choice of the advisor but the exactly reflects the commission/fee agreed. Through a new model advisor that is 1% plus the natural 0.5% trail making it 1% more expensive than HL on non-advice basis.

Where Selestia are more expensive as a fund supermarket is that they charge a flat 5% initial charge on ALL funds. So a fund that is normally 3% initial charge costs 2% more but a fund that is 5.5% obviously costs 0.5% less. However, with fund switches free of charge in the future and annual auto rebalancing at no cost, the long term benefit outweighs the short term hit. If the advisor takes 1% commission. then 3% is rebated off that 5%.

What bothers me personally in PPs is their ability to present the charges in a rather annoying way (somewhat concealed) so you have to do quite a bit of calculations yourself to work out the exact TER. (This is where i prefer SIPPs)

Unit trust funds do seem to be a little further advanced on true disclosure. However, many pension funds have absorbed the "extra" charges that would push up the TER into the standard amc.


edit: sorry for a bit of repeat in the post. I took a gap between starting and finishing the post and forgot I had already mentioned one bit.

moneytroll

great, many thanks. this clears up most (if not all) of the fog about this whole hybrid/ppp/sipp issue. looks like hybrids could be a decent substitute for ppps. though i think the initial charge issue should be sorted out, IMO - i don't think any ppps would have an IC at all, would they? (mine doesn't)
there is an initial deduction, but i think it's taken out from the amc somehow.

nevertheless, if this hybrid scheme really proves to be much better, then "older" type pension schemes must be going nuts - wouldn't it put them out of business or are they going to adjust and change their structure anytime soon as well?

EdInvestor

DH

Where Selestia are more expensive as a fund supermarket is that they charge a flat 5% initial charge on ALL funds.

You don't actually mean to say that you are paying a 5% initial charge on the investments in your own personal pension fund, do you? :eek:

Surely not.

moneytroll

i was waiting for Ed to join in any time as soon as the IC issue came up
you two are so funny with each other...:beer:

but seriously, it is a very helpful thread. (the whole site really!)
many thanks :T

dunstonh

EdInvestor wrote:

DH



You don't actually mean to say that you are paying a 5% initial charge on the investments in your own personal pension fund, do you? :eek:

Surely not.

Selective copy and pasting again ed? if you had carried on you would see that it is before rebate. Exactly the same as the other fund supermarkets.

here is the rest of the paragraph in relation to charges:

However, with fund switches free of charge in the future and annual auto rebalancing at no cost, the long term benefit outweighs the short term hit. If the advisor takes 1% commission. then 3% is rebated off that 5%.

So, in my case, I take no initial commission or trail commission making it 1% initial charge on the bid/offer spread and obviously making it cheaper than HL as I do not take the trail commission.

I am seeing a client on Tuesday to put a transfer in to the same pension on no initial commission and standard 0.5% trail. So again, long term, that will be more cost effective than HL plus with that fund there is about £40,000 of protected rights which will be invested which you cannot do in a full SIPP.

As for other differences with a full SIPP and the hybrid is that the hybrid has no cash account, just as an ISA. Any investment made goes directly into the chosen funds and not in to the cash account for that then to be invested.

I dont expect the hybrid to kill off the full SIPP. However, with it using personal pension trust rules, being fully regulated, accepting protected rights and having no second layer of charges for services I see it as being a replacement for personal pension rather than a replacement for SIPP.

EdInvestor

Selective copy and pasting again ed?

No, that was a genuine query, I didn't understand what you meant.No need to get paranoid :A

The hybrids will no doubt pick up business for now because they can take protected rights - the real SIPPs should be able to do that as of next April, and possible from October, though not necessarily with full investment options at that point.

Can't see the benefit of having no cash account myself.It's very useful being able to switch investments into cash and earn interest straight away,or indeed even keep a portion of your fund in cash - particularly if the fund is paying you out a pension income - and also to get your dividends paid in.

I find the normal SIPP is very easy to manage, as you know exactly what's going on and what the charges are for whatever you want to do.If you invest in shares nothing's hidden at all.

BTW an ISA at a broker has a cash account.

I appreciate that many people can't be bothered to manage their money - and are willing to pay for luxury of being lazy about the subject.

cheerfulcat

As for other differences with a full SIPP and the hybrid is that the hybrid has no cash account, just as an ISA.

Except that self-select ISAs do have cash accounts and jolly useful they are, too, especially when you have the cash available to fund the account but do not, for whatever reason, wish to invest right away.

I think that the main attraction of the HL-style SIPP is that there is a much wider choice of investments compared with PPPs and "hybrid" SIPPs - I am starting to suspect that the charges, when investing in funds, might not differ that much ( it's very hard to tell...).