Choosing a Sipp can be tricky enough, but choosing one to recommend for property is particularly so. There is no common format for due diligence – any provider will tell you that no two questionnaires are the same. Various surveys and adviser research tools help narrow the market, especially by product features. Then, of course, there is the question of cost – one many clients are quick to ask.
Finding the ‘cheapest’ is a fool’s errand. Life is sufficiently unpredictable to scupper any model. Besides, Oscar Wilde warned us all about knowing “the price of everything and the value of nothing”. Nonetheless, an assessment of value includes an understanding of price.
A lot of the work involved in running non-property Sipps is covered by fixed fees. Though illustrations do not enable cost comparison due to regulation shunning standard growth (or cost) assumptions, some third parties have built tools intended to do projections on a like-for-like basis. They still cannot guarantee you the cheapest Sipp but they should give a good indicator of relative cost – at least if your time horizon is reasonably accurate. (As time passes, the relative competitiveness of recurring fees matters more than initial ones.)
Property Sipps have had to sit somewhat outside the scope of such efforts. Providers generally dealt with the variability of commercial property cases by charging time-based fees; solicitors did likewise. The cost of a case was therefore likely to depend on a combination of the nature of the property, as seen in Table 1, the experience and skill of the provider (and solicitor) and their hourly rate. Often, this was true not just for initial purchase-related fees but also ongoing charges. In predicting costs, the above factors needed weighing up, although there was no precise, mathematical formula for doing so.
The drawback of time-based fees, particularly for clients who are not experienced property investors, is that they create uncertainty as to cost – and there is a weighty body of psychological research showing most of us dislike uncertainty. It can be partly tackled by the client providing details of the case in advance and estimates being given in return but these inevitably have to be caveated. Some clients still fear they are writing a blank cheque.
Doubtless
A growing band of Sipp providers have responded by developing fixed-price options. These vary in terms of qualifying criteria (based on the features of the case) and conditions (for example, obligatory panels of third parties which may include solicitors, lenders, surveyors, property managers and insurers, depending on the provider).
The first step is to consider whether these fixed-price options meet the client’s needs. Some clients may find certain limitations unacceptable – there are advantages to using a local surveyor’s local knowledge, say, or the ‘best’ mortgage offer on the market may not be available from a lending panel. The biggest factor may be the solicitor: the client may wish to use their own. With hindsight, this sometimes proves to be a mistake where the solicitor is unfamiliar with the peculiarities of a Sipp buying a commercial property or the provider’s own specific way of doing things.
