In the first part of our Investor’s Guide To SIPPs, we covered the basics, explaining that SIPPs are long-term, tax-efficient investments designed to provide investors with more control and flexibility over how their retirement funds are managed. They can be thought of as “DIY” pension that allow you to manage your investments via an online platform.
Finding a SIPP that’s right for you can be a confusing and long-winded process. But it doesn’t have to be. Here are some tips on what to look for.
Pause for a moment
Before doing anything, ask yourself if you really need a SIPP. Are you confident enough to take control of your retirement funds? Do you have enough time to manage your own investments?
A SIPP certainly isn’t for everyone. But for financially literate investors who want more flexibility and control over how their retirement funds are managed, they can be a great option. If you’re not sure, it’s worth seeking the advice of an Independent Financial Advisor, who can work through your options.
Think big picture
There are tonnes of SIPP providers vying for your money, so where to start?
It’s tempting to begin by comparing fees. Value for money is clearly an important consideration when thinking about your retirement planning, but getting bogged down in price comparisons can lead to lead to confusion and inertia.
It’s far better to think about the type of investments you want to make for your retirement. What asset classes, sectors and geographies are you looking to gain exposure to? SIPPs can hold many different investments but many don’t offer the full range. So ensuring that your SIPP provides access to the right investment category for you is critical.
Returns are a critical part of this. Different investments perform in different ways according to a plethora of factors. Once you’ve considered the different investment options and their suitability with regards to your financial objectives, you will be well positioned to compare service offerings and fees.
Get a handle on costs
Once you have a list of SIPP providers that offer the investment products you need, it’s time to consider costs.
It’s hard to compare apples with apples when it comes to SIPPs, since providers use a range of different charges. Annoyingly, the industry does not have a standardised charging structure, so investors need to do their homework.
Some SIPP providers charge a fixed fee, whilst others charge you according to the amount you invest with them. And some offer better pricing for larger investments via tiered charges. So it’s worth opening up a spreadsheet and working out the actual cash charges for your proposed investment so that you are fully aware of how much you will be paying.
It’s tempting to focus on the SIPP account fee as this is the headline grabber, but you should consider costs in their entirety. At various stages of your investment journey other fees may crop up, so remember to consider how often you’ll be buying or selling securities or funds, as this can also have an impact on the fees you pay. It’s also worth bearing in mind that some SIPP providers charge exit fees, charges for income drawdown and one-off charges for making lump sum withdrawals. So it pays to take your time in assessing your options and committing capital since trading, exiting and moving funds elsewhere can be expensive.
The importance of service
Market access, performance and costs are all important parts of the puzzle when it comes to choosing a SIPP provider. But don’t underestimate the importance of customer service.
Ultimately, these are your retirement funds we’re talking about. In order to place your money in the care of others, you need confidence that you’ll be able to reach them, ask questions and get reassurance on how your money is being managed. By the same token, you should be careful about overpaying for features you don’t need.
Before investing with a SIPP platform, it’s best to focus on nailing the basics – what investments you wish to hold, how often you’re likely to trade, how much you’re willing to pay, and how much trust you have in the expertise of the provider.
If you get these right, you’ll be well on your way to success with SIPPs.
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Capital at risk, instant access not guaranteed. No FSCS protection. Saving for retirement requires careful consideration. Please note that WiseAlpha makes no recommendations or statements on behalf of any of the providers; nor do we provide any guidance or advice to investors on how to choose their provider.