Selecting any financial product is complex, but with over 120 SIPP (Self-Invested Personal Pension) plans to choose from the decision over which to select is more complicated than most.
To help you wide your way through the maze of options we thought we would take a whistle stop tour of the do’s and don’ts of choosing a SIPP provider.
Go for security. We would always suggest choosing a SIPP provider who is financially robust. That means they are profitable and are able to meet the FSA’s capital adequacy requirements, both now and in the future. Whilst your SIPP assets are ring-fenced and would not be lost if the SIPP provider went bust, such an eventuality might cause significant administration problems and would also mean a potentially costly transfer to an alternative provider.
Look for value for money. We all want to reduce charges to as low a level as possible, after all, the less you pay in fees and costs the higher return, but you also need the SIPP to meet all your needs. That means searching out a SIPP provider who will offer great value for money, but who will also allow you to make the investments that you want to, whilst at the same time offering a great level of service.
Make sure you can make the investments you wish to. HMRC rules dictate the investments you can hold within your SIPP, however not every SIPP provider will accept all of these. Commercial property and SIPP deposit accounts are a good examples; many SIPP providers won’t allow these to be held in their SIPP. Before you change SIPP provider make sure that you are allowed to make your chosen investments.
Always select the cheapest SIPP. Some SIPPs are very cheap to run, but they generally come with limitations, particularly concerning the investments which you can hold. Don’t immediately leap and open the cheapest SIPP, before you take the plunge make sure that the SIPP will allow you to buy your chosen investments; another set of transfer fees in the future is the last thing you need.
Just go for the biggest or smallest SIPP provider. There are good SIPP providers and bad SIPP providers; in our experience size is rarely an indication of their quality. We’ve seen some excellent large SIPP providers offer good quality products for an excellent cost; on the other hand we’ve seen small SIPP providers do the same. Look at cost, investment flexibility and financial security; don’t just focus on size.
Dismiss taking advice. Many people who invest into SIPPs take the â€˜do it yourself’ approach, which is fine if you are an experienced investor who knows what they are doing. On the other hand, if this is the first time you have invested in a SIPP it might make sense to rake some advice. Sure, you will pay fees, but this might represent excellent value for money, especially if it stops you making a costly mistake.
Avoid costly mistakes
Following our do’s and don’ts will help you avoid making some potentially costly mistakes, there are more, which we will discuss in a later article, but these six should be enough to keep you going for the time being!
What is a SIPP? What are the do’s and don’ts when choosing a SIPP? Phillip Bray of Investment Sense looks at these questions and provides the answers.