Adding or expanding niches might fit with the broader picture of vertical integration where platforms, wrappers, advice and, in some cases, in-house investment propositions form a one-stop shop.
However, this does not generally seem to have been the case, as most acquisitions have been of one Sipp provider by another. This is hardly surprising, as platforms typically have their own built-in Sipp wrappers, and most will see adding niches (say, commercial property) as a step in the wrong direction as they reduce scalability.
Increasing scale
The third of the reasons, increasing scale, could be looked at from three angles, all of which I would argue represent highly influential forces of the Sipp market: capital requirements, technology and the number of pension schemes and products.
Acquisition has the potential to bring about reductions in capital requirements in relative and even absolute terms due to the square root function on assets under administration and percentage of book-in non-standard assets.
It is ironic that the new capital adequacy requirements encourage acquisition, even as new risks occur with each corporate action.
Technology is shaking up industries everywhere you look, and Sipps are not immune. Modern systems are needed to meet everything from regulatory requirements to customer expectations. Running, maintaining, developing and training in different systems means replicating considerable overheads.
Even where acquired businesses remain ostensibly separate, there is likely to be a strong commercial motivation to unify systems. This usually comes with considerable up-front costs, a period of disruption and some unwelcome surprises. However, postponing the inevitable tends to mean having more to deal with later.
Scheme numbers
‘Number of pension schemes’ probably struck you as an odd angle – the focus always seems to be on the number of Sipp products, never the underlying schemes – but acquirers will understand its significance. Each Sipp provider will have at least one pension scheme. When you acquire a provider, you acquire a scheme (or schemes) as well as Sipps.
Each scheme and product comes with its own set of overheads: legal, literature, fees, presence on websites and updates every time something changes, which is most expensive in the case of regulatory change (this also seems to be the most frequent source of change).
However, consolidating everything into one product is not easy, particularly when it involves transferring to a different scheme.
Moving clients is a slow, expensive and potentially distracting process and it also opens up the possibility of them moving to another provider altogether. But letting them stay put rules out many of the beneficial or cost-saving synergies of bringing two providers together in the first place.
