Spreading the risk - more than 1 SIPP Provider

ianthy

I have had a quote to transfer my deferred DB pension. As I have other funds/investments, I will likely proceed with the transfer. My thinking is to spread the risk by using 3 SIPP providers - maybe 1 with my IFA for investments that I need advice and happy to pay commission – Shares, Unit trusts etc., For the 2nd and 3rd SIPP's to hold cash, corporate bond, GILTS and Gold – investments where I would self manage.

Does this make sense and has anyone used a different approach to spreading their risk beyond using 1 SIPP provider?


Thanks for reading.

Linton

What risks are you trying to spread? I assume you are aware that should a SIPP provider go bust they cant use your investments to pay their debts - a totally different situation to that with bank accounts. The investments would be transferred to another provider.

The problem with having different asset types in separate SIPPs is that it makes rebalancing extremely difficult. You could end up with a bit of everything everywhere. So I wouldnt recommend it. Me and Mrs L do have our SIPPs with different providers although they are run as a single portfolio, and yes both now contain duplicate funds. That cant be avoided with two people, but it does add to the complications.

A final point - I would be very uneasy about having different parts of a portfolio run by different people. In my view to run a portfolio properly you do need to take a holistic view.

Malthusian

It's likely a waste of time. If the SIPP provider goes bust the investments held by the SIPP will still be there, and in all likelihood your account will simply be transferred to another SIPP provider which buys the client book from the administrator. FSCS cover is virtually irrelevant assuming that you aren't holding more than the FSCS limit in cash with one bank.

Why do you think that you need advice on shares and unit trusts but not for corporate bonds, gilts and gold (which are equally high risk)?

dunstonh

have had a quote to transfer my deferred DB pension.

Interesting that you feel that the FSCS protection on a SIPP is a higher risk than transferring out of DB schemes into money purchase.

My thinking is to spread the risk by using 3 SIPP providers - maybe 1 with my IFA for investments that I need advice and happy to pay commission – Shares, Unit trusts etc.,

What risks are you spreading by doing that?
Commissions no longer exist (since end of 2012)

Does this make sense and has anyone used a different approach to spreading their risk beyond using 1 SIPP provider?

Largely pointless. SIPPs get less FSCS protection than personal pensions. The key thing is the investment itself. Not the SIPP wrapper. And if you intend to hold unregulated investments in the SIPP (another high risk) then you dont get FSCS protection at all on those.

So, by all means spread the investments over multiple fund houses but no need to have multiple SIPPs.

ianthy

Thanks for the responses. The risk I am trying to spread/reduce is the disruption that could be caused by a SIPP provider going bust. Has this happened before and resulted in investments been tied up/inaccessible during the period.
Just to check there is also no benefit from using different SIPP providers/charges for specific investment products?
Thanks again for the advice.

dunstonh

The risk I am trying to spread/reduce is the disruption that could be caused by a SIPP provider going bust.

SIPP providers are being required to increase their solvency levels. They were too low compared to others.

Has this happened before and resulted in investments been tied up/inaccessible during the period.

Yes. But only with a non-mainstream provider prior to the solvency increases.

Just to check there is also no benefit from using different SIPP providers/charges for specific investment products?

Technically, spreading the £50k protection at SIPP level does result in greater FSCS protection but its a very insignificant risk. One of the least risks you can get. It would also increase costs and create unnecessary admin as you run additional plans and have multiple tax codes

As you plan to hold unregulated investments, you dont get FSCS protection on those anyway.

jamesperrett

Just saw the article below retweeted this morning... https://www.ftadviser.com/2016/08/15/opinion/blogs/harlequin-set-to-topple-sipp-providers-onIQLQdbDWYzvOXF7NbcvM/article.html

cjking

I am concerned that there's no way to protect my pension against fraud at the SIPP provider. (Other than splitting my SIPP across several providers, which I don't really want to do.)

Who checks that what the SIPP provider tells their clients they collectively own, and what the trustee actually holds, add up to the same total? Who pays out if they don't, assuming the SIPP provider has insufficient funds to right any discrepancy?

AnotherJoe

There are auditors but how deep they can dig is unknown. Fraud of the sort you discuss would require an astonishing level of complicity amongst the staff. The only one I can think if on such a big scale was Madhoff and that was a couple of people in a "black box" organisation not the multiple dozens to hundreds that you'd need for example, for HL to take my £10k, tell me I'd bought Acme corporation shares, and instead transfer the money out of HL, amd then when I sell Acme, take the money from somewhere else (other customers ?) and place it back in my account to let me buy Delta corporation,,rinse and repeat.
I think the sheer number of people that would need to be involved in such a scam would be a bigger guard against fraud than any auditors would be.

As for the OP, one issue with having multiple SIPPs as you mention, and arranging them so equities are in one, bonds and cash in another, etc, is that it would be very inflexible. Suppose you wanted to sell bonds and buy equities or the reverse ? You couldn't do it.

So if you do have several, I'd say you should keep whatever your preferred allocation between different types of investments is, across all SIPPS. There is prhaps one reason for splitting, cost. You might , keep funds in a low cost provider, rather than in one that has high charges for funds, like HL. Most of my funds are no longer with HL.

AnotherJoe

jamesperrett wrote: »

Just saw the article below retweeted this morning... https://www.ftadviser.com/2016/08/15/opinion/blogs/harlequin-set-to-topple-sipp-providers-onIQLQdbDWYzvOXF7NbcvM/article.html

The thing that confuses me in that article is that it repeatedly mentions SIPPs and people being advised to buy certain funds. But isn't the point of a SIPP that it's Self Invested? None of my SIPP providers give me any advice. If I wanted advice I'd use an IFA and a SIPP just to hold the results of that advice.

There is a second level argument, that some investments should not be accessible from within a SIPP, and the SIPP providers are liable for allowing Dodgy Corporation Inc to be bought, on that I can't comment as I don't know how investments are qualified and who does that.

Malthusian

AnotherJoe wrote: »

There are auditors but how deep they can dig is unknown. Fraud of the sort you discuss would require an astonishing level of complicity amongst the staff. The only one I can think if on such a big scale was Madhoff and that was a couple of people in a "black box" organisation not the multiple dozens to hundreds that you'd need for example, for HL to take my £10k, tell me I'd bought Acme corporation shares, and instead transfer the money out of HL, amd then when I sell Acme, take the money from somewhere else (other customers ?) and place it back in my account to let me buy Delta corporation,,rinse and repeat.

And the other problem with this scenario is that it would be much much simpler for HL to just, er, buy Acme Corporation shares. And rake off the dealing fee and annual charge as usual.

If HL's owners wanted to take the money and run, they could engineer the biggest conspiracy the financial world has ever seen, nobble or bribe their entire compliance and auditing staff, and maybe, maybe get away with a few hundred million from client cash accounts. Or they could sell the company and pocket at least two billion, and not be on the run for their entire lives.

There is a saying that crime doesn't pay. Crime does pay, but as any dealer on a street corner will tell you, crime pays less than minimum wage (Levitt & Dubner 2005).

I can look up the stockmarket value of Acme Corporation and if the value HL says that I've got in my account is roughly in line with what I know the value should be - and if the thousands of other people using HL are experiencing the same - there is unlikely to be any issue. There is simply no incentive for HL to be cheating.

The giveaway with Bernard Madoff is that he was consistently making returns on investment that were completely out of line with the markets. Analyst Harry Markopolos said that he knew it was a fraud within five minutes and proved it mathematically within four hours. However instead of thinking "something's fishy here" his investors thought "how marvellously clever I am for picking such a good investment manager".