Using the above assumptions the cost of the SIPP wrapper alone can be isolated, which produces a reduction in yield (RIY) of – 0.18%.
The client and adviser are of course in control of all investment, benefit and remuneration decisions and hence the total cost. Assuming investment in UK exchange traded funds, with an average TER of 0.35% pa, and including adviser remuneration of 3% initial plus 0.5% trail there is a natural increase in the RIY to 1.23%.
If a more sophisticated investment solution is considered eg. a range of collectives where the average charge is 1.60% pa, we again see a natural increase in the RIY to 2.04%.
Any future use of facilities such as drawdown will of course introduce additional charges. The client will only be paying for this additional functionality as and when it is introduced to the financial planning scenario. Only by looking at the specific case can you determine the cost and answer any question of suitability.
The increase in SIPP popularity has in many ways mirrored the popularity of platforms. Low cost, online solutions have allowed advisers to build bespoke investment solutions with costs that compete head on with the other pension solutions available in the mainstream market.
The RDR of course throws an additional ingredient into the melting pot. Evolution of the investment solutions that the market will offer must already be considered and adds another important dynamic to the SIPPs vs PP debate.
Gareth James is technical marketing manager at AJ Bell
