Number 8 in a series of headscratchers about SIPP capital adequacy proposals

The majority of SIPP operators have a business model predicated on offering an efficient and value for money administration service for which it charges a basic annual fee plus fees based on the transactional cost of carrying out administration activity.

Annual administration costs are not associated with the size of the assets under administration as the activity involved in administering a SIPP with assets worth £1m will be broadly the same as a SIPP with the same number of assets worth £100,000.

This business model has the advantage of allowing SIPP operators to take an unbiased and neutral approach as to the size of funds, where clients choose to invest and the performance of those funds.

This indicates that a capital adequacy regime that is based on SIPP numbers would be more closely aligned to SIPP operators’ business models than one based on Assets Under Administration.   Applying a formula that uses Assets Under Administration may result in SIPP operators moving to a fee model that charges according to the size of contributions paid or transfers received.