Are SIPPs the right option?

TinkerMan_3

I am a little bewildered over all the options and opinions relating to pensions, and my situation seems a little different to the majority…

My wife and I have started our own business, and have left behind a series of personal pensions with funds ranging from £1k to 20k. All are currently frozen. We are not currently paying into any fund. My wife’s funds total 40k, mine 60k. About 7k of mine are “protected rights”. We are both aged 34.

I want to collect them together and take a more active role in how the amounts are invested. I am familiar with investment funds, and could be interested in REITs in the future. I’m not interested in trading individual stocks. I’m considering opening a SIPP account each with someone like Sippdeal, and transferring all the funds (minus the protected right money which is not accepted). This will then be invested in various funds of my choosing and monitored monthly. I will probably make minor adjustments over time, but not frequent sales/purchases. I want to be able to chose from all the "good" funds, and not find myself restricted in choice. Having said that, a lower annual management charge would be attractive and a trade-off I might consider.

I’m not currently planning on putting any more money into a pension in the future. We are both directors earning 4.5k salaries (dividends make up a significant proportion of our income), so there doesn’t seem much point as I don’t like the idea of locking away money until 55 when there’s no real tax advantages.

Is this the right approach? Should I be considering something different? Maybe these hybrid SIPPs I've seen discussed would be more beneficial if I can find an IFA that’s prepared to take a cut in their commission (which may be doubtful given the relatively low amounts involved)?

Thanks in advance for any guidance

EdInvestor

Your plan seems fine to me,this type of SIPP is ideal for lump sums which will be invested without a lot of trading.

If you know which funds you want to invest in, it's probably worth comparing Sippdeal's charges with those of Hargreaves Lansdown for your particular portfolios.I'd have no hesitation in recommending the former for a mainly share-based portfolio but HL might have a slight cost edge if you want mainly or entirely funds.Not a lot it in though, I suspect.

You'll need an IFA for a hybrid SIPP from what I can gather.

Proetcted rights are not currently allowed in Sipps, but should be from next April and possibly from October this year. The delay is to enable Sipps to be fully regulated first.

dunstonh

Nearly all the hybrid SIPPs (and that now does seem to be the generic name given) are thorugh IFAs only.

Hybird SIPPs tend to be UT/OEIC/REITs/SICAVs only or use insured funds until you are ready to move up to other investment options.

The Hybrid SIPPs which offer funds only are mainly geared to new model advisors, so lower commission cut is fine. I myself have done 5 this week. 3 of them on no initial commission basis and the other two on 1% and 3 of them were smaller than yours. I know of at least 3 other advisors doing exactly the same. So, you should be able to find one but remember new model advisors are still a minority.

Hybrids will accept protected rights.

I guess the way to look at it is if you want total DIY, then someone like SIPPdeal is for you. If you dont mind an IFA getting involved then the hybrid would offer protected rights being included and no switching costs between funds (if you pick the right hybrid that is).

If the hybrid is done on execution only with an IFA you should be able to avoid any initial commission being taken with your amounts and the cost difference thereafter should be minimal between the options as it then really comes down to annual management charge. If you intend to switch relatively often, then the hybrid should work out cheaper but the full SIPP would allow greater investment options.

TinkerMan_3

Thanks very much for your replies. It's nice to know I was heading in the right direction. These forums have provided so much useful information and I value both your opinions.

I've seen the term "new model advisor" mentioned before, but I'm unclear as to what it means. Can you explain? Is this a type of IFA?

Do you know whether the DIY SIPPs such as SIPPdeal will be offering REITs when they become available next year?

EdInvestor

TinkerMan wrote:

Do you know whether the DIY SIPPs such as SIPPdeal will be offering REITs when they become available next year?

Almost certainly. You may like to look at the offshore property investment trusts mentioned here, which are available now.Also of course you can buy shares in big listed blue chip property firms like Land Securities, British Land, Hammerson etc, which will probably convert themselves into REITS later. You must DYOR though, this is not advice.

I imagine that REITS will be listed like investment trusts and shares, and thus may not be available in the hybrids as IFAs don't usually operate in this area..

dunstonh

IFAs do not differ from any other retail area. You can buy the advice and product at varying costs from different IFAs.

New model advisor is the term used for IFAs that charge a fixed amount, cheaper than than normal that doesnt change regardless of the product wrapper used. Typically 1% initial commission plus 0.5% p.a. for funds under management.

Old model advisors tend to take maximum commission all upfront. This typically can be as high as 7% on some investments. The 0.5%pa. is basically paid in advance to maximise commission upfront.

So, say you see a new model advisor and the typical commission on a product is is 4% plus 0.5%pa., they will only take 1% initial and rebate 3% back into the plan. This means that the cost of advice is only 1% more than using the discount providers like HL, SIPPdeal etc yet you get fund recommendations, provider recommendations and ongoing servicing.

The old model basis is not seen to be sustainable. It relies on selling a product and then moving on to the next person to sell another product. Once sold, there is no money to be earned in servicing, so servicing rarely happens.

The new model basis focuses on the funds under management side. That 0.5% p.a is more important than the initial commission. It provides a regular income stream to the advising company without the need to sell new products.

So, the benefits of new model basis is that its cheaper than old model advice basis. Its only fractionally more expensive than using discount brokers where you get no advice (HL and SIPPdeal for example, keep the 0.5% p.a. so only difference is that 1% initial). There is no incentive for the advisor to churn without reason as the initial commission only applies to new funds and not existing under management. There is no sales pressure (either real or perceived) and there is no commission bias as its flat rate.

I have to admit to a bias as I work on new model basis. However, when I look at the position I am in and compare it to the position some old model advisors are in, I do not regret it one bit. Those same advisors used to say to me that I was daft only taking £1000 on a 100k investment when they got £7,000. However, they are now running out of business and their income is suffering whilst I have a steady income stream and spend much of my time servicing that. Indeed, so much so that I spend more time in front of a computer now preparing reports than I do on the road and in front of new clients (its why I can spare the time posting here as I tend to check the board between reports). I'm better off. The client is better off financially and gets real servicing and the advisor gets paid on performance. Its a win-win situation.

I imagine that REITS will be listed like investment trusts and shares, and thus may not be available in the hybrids as IFAs don't usually operate in this area..

Currently the focus on the hybrids are the real estate funds like Schroder Global Property, LaSalle, SWIP, Fidelity Global and the others. Basically OEICs investing in REITs. These are fine for IFAs. However, individual REITs would probably suffer the same restrictions that currently exist.

TinkerMan_3

Again thanks very much for your replies. Very informative. I've learned a lot just from this thread. I will consider the various options and make a decision in the next couple of weeks. I will continue to monitor other threads to keep abreast of future developments.

I'm new to these forums, and I'm impressed with the quality.

Thanks for your time