Increased regulation and competition is spurring consolidation in the Sipp sector but what will the future hold? By Sally Hamilton.  
You may need to reach for a super-sized box of confetti this summer, as it is not just the peak wedding season for mortals but for pension businesses too, it seems, and many industry watchers are forecasting that more will tie the knot over the coming months.
Just lately Suffolk Life, for one, has been indulging in multiple marriages, having bought four books of Sipps business from providers including Pointon York and Origen and it admits it is openly looking for more.
Greg Kingston, head of marketing at Suffolk Life, said: "We believe that there will be significant consolidation in the next 18 to 24 months and we plan to play an active part in that."
The Financial Conduct Authority is effectively precipitating these partnerships as it seeks tighter rules and regulations, particularly those relating to increasing capital adequacy limits for those Sipps holding non-standard assets, including property. This is on top of the extra burden on providers to issue key features illustrations, made compulsory for the first time in April, and the changes to charging structures on platforms.
Mr Kingston added: "What's driving it is the sheer amount of regulatory change bearing down on the Sipp industry, catalysed by the CP12/33 on capital adequacy. This will bring a number of Sipp operators down to the wire."
The regulator certainly fears that poor controls and some risky, illiquid investments offered by some Sipp providers are leaving customers too heavily exposed to risk (a key conclusion from a thematic review of the industry last year) and it is taking a tougher stance.
But even before the watchdog has spelt out the final rules on capital adequacy, due in the next few months, the uncertainty is causing even quality providers to question whether they can carry on alone. One consequence is potential anxiety for Financial Planners concerned about the fate of their clients' Sipp providers, both current and future.
Andrew Roberts, chairman of AMPS, the Sipp industry membership group, explained: "With consolidation in the Sipp industry now a reality, advisers will be wanting to understand the future plans of any recommended Sipp operator. The Sipp books that have been sold so far are typically add-on businesses for adviser firms, while specialist operators are generally waiting for the final capital adequacy rules. During this period of uncertainty, it's important that Sipp operators engage with their adviser community."
Mr Roberts added: "Regulatory changes are polarising the Sipp market between those that allow efficient access to regulated investments and those that allow more non-standard investments as part of their proposition. Advisers recommending more esoteric investments are likely to find a more restricted market for that type of business, with a number of Sipp operators already restricting what they now allow within their Sipp product."
Robert Graves, head of pensions technical services at Rowanmoor, believes planners do need to consider the strength of the Sipp companies and whether they can meet the new requirements. As for Rowanmoor, he is relaxed about its position. He said: "With some companies, Sipp admin is not at the core of their business. But Sipps and SSASs are what we do and we have got to find a way of meeting the requirements. Our SSAS business is 40 years old so we are well established." He believes there may be a flurry of takeovers once the capital levels have been agreed but wonders whether all buyers will understand the full financial impact as there is not only the price of purchase to consider but also the additional capital adequacy to meet.
Mr Kingston describes a kind of symbiotic relationship created by his firm's marriage deals that does not impact clients negatively. He said: "What's interesting is that in our last two deals with Pearson Jones and Origen, it has been with advice firms where Sipps were not a core part of their business but where they are continuing their relationship with the clients and have essentially chosen us as their Sipp partner."
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With 120 plus providers in a £100 billion market most agree it is a sector ripe for consolidation. Mr Kingston boldly predicted numbers would fall to below 40 by 2015. He said: "There will be fewer of them but they will be fitter, stronger and pose less risk to investors. Advisers' jobs will be made easier as there is no need for over 100 different schemes to choose from. Neil MacGillivray, head of technical support at James Hay Partnership, believes that is it the smaller players that will be gobbled up piecemeal over time rather than any major merger taking place.
He suggested that the weight of the increasing rules and regulations were simply encouraging smaller players to conclude, "it is more bother than it's worth". Mr MacGillivray added: "The issue for the buyer is what problems are they buying? They take over the responsibilities so I suggest that due diligence is easier to carry out on a small book of business."
The signs are, that whatever tie-ups occur, the market will remain vibrant. Although there will still be a need for flexible Sipps, for commercial property in particular, the real growth is forecast to be on platforms and fund supermarkets with their offerings of stocks and shares, offshore bonds and ETFs, in addition to funds - a trend that will be stimulated by the post RDR move to clean share pricing. Standard Life is predicting a huge growth at this end, with bespoke Sipps becoming ever more niche and aimed at sophisticated investors. Alastair Hardie, head of customer consolidation at Standard Life, said: "We will get to a smaller number of bigger Sipp providers. Back at A Day in 2006, Sipps went from a cottage industry to mainstream and now that they are regulated we will see a contraction maybe towards about 10 fully flexible Sipp providers."
He added: "There is a role for the specialists but it will be concentrated on a smaller number of suppliers with scale. I think it's heading towards 70 per cent through platforms. For the consumer and advisers there will still be loads of choice - and certainly advice can add value."
A further squeeze on the flexible Sipp sector will come when the door closes on advisers recommending unregulated collective investments for pensions. Mr Hardie added: "That is likely to be cut away at the end of this year."
The future success of individual providers will also be down to their technology because much Sipp administration to date has been "quite clunky", he believes. Mr Hardie added: "There will be more competition on price and it will be driven by investment in technology. The way businesses have evolved it is quite manual." This also raises extra challenges for those providers who plan to buy the Sipp books of others and integrate them with their own systems.
David Fox, director of sales and marketing at Dentons, which acquired RSM Tenon's bespoke Sipp arm Tenon Pension Trustees in March, adding 700 Sipps and 80 SSAS schemes to its book, believes planners will have to work harder to find the best Sipps. He said: "Advisers will have to do more due diligence. They need to look at the financial strength and profitability of the provider and their ability to perform in the future. And then they need to look at the assets that the schemes will hold - are there any that will be taxable or are hard to sell? Have they been taking on poor quality assets? If they have lots of esoteric assets that will affect their profitability."
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Mr Fox believes they will have to do more research to check exactly what clients will be allowed to hold and where, as more tailor-made Sipp providers start to clamp down on what they might include. He said: "We are very conservative as we won't allow anything that has even a slim chance of a tax charge arising. This strategy has stood us in good stead." Mr Fox says his firm's Sipps have at most 30 per cent held in non- standard assets compared to some providers that allow 70 per cent or more. He added: "The attraction of Tenon was the good quality book and also the opportunities for the future, with Tenon as an introducer."
Billy Mackay, marketing director of Sipp provider AJ Bell, believes full Sipps will always have a role but the market will be tougher. He said: "There is a place for niche type propositions as there will always be clients who will want esoteric investments. But these are paper based and more expensive. There are 100 plus products (see tables) in this area and the FCA would like consolidation and it's hoping the capital adequacy changes will achieve this. It will be harder to play in this market."
He expects fewer of the tie ups to occur between the bigger firms that focus on platforms as platforms secure a stronger role. Mr Mackay said: "Platform charges are a key driver giving increased focus in the platform world to the total cost of ownership of investments. What you see is the bigger platforms negotiating terms with the fund groups and fund groups will be looking at platforms to help their distribution." This, Mr Mackay believes, "will be good news for Financial Planners."
A key factor fuelling growth in Sipps generally, will be an increased focus on income drawdown as Financial Planners are called on to help clients work their pensions assets harder in retirement in an era of stubbornly poor annuity rates. Mr Kingston said: "People do not want to lock into historically low rates if they continue to live for another 20 years or more. Income drawdown keeps their options open."
Alastair Black, head of customer consolidation at Standard Life, said: "Continued professional support from a financial adviser is critical to any successful pension drawdown strategy. The popularity of drawdown is on the rise as it provides users with more choice, control and flexibility over their income but it can be complicated with varying client aims. Financial advisers are best placed to look after their clients' interests and needs while they are in drawdown by helping to manage their income needs, investment choice and tax affairs for maximum efficiency." Christopher Wicks CFP^CM, of Bridgewater Financial Services in Manchester, is watching developments, especially at the platform end. He said: "Most of our business is on Transact and Ascentric, which are open architecture wrap Sipps. A Sipp is just another tax wrapper, a glorified pension plan with tax breaks and restrictions. Pricing on platforms will be important. However. although we want a good deal at the same time we don't want to pick one that has charges that are so little it goes bust."
Matt Ward of research group Defaqto, which helped compile our table of Sipp products, says that advisers will have to take on board the impact of the challenging economic times currently facing providers.
Mr Ward said: "They will have to have some sort of communications strategy for their clients. Advisers will need to ask questions and realise that there may well be additional administration involved if their provider gets taken over. There could be an element of cherry picking too with buyers taking the Sipps that they want rather than ones that might have more unusual investments. There is certainly a concern around orphaned clients and what will happen to them."
Marriages are usually celebrated by both sides' families but often only the favoured ones get to be bridesmaids or ushers, while the black sheep do not even get an invitation. In the Sipps market of the future similar choices may need to be made.