In fact, understanding the provider’s perspective is very useful in weighing up when to encourage a client down the time-cost route and when to suggest using a fixed-fee package.
Fixed fees pass uncertainties back to the Sipp provider. This is potentially compounded by fixed fees acting as a magnet to more complex cases.
Of course, providers have advantages in dealing with this. There is an information asymmetry whereby the client typically only buys one property whereas some providers have bought thousands. This is invaluable in setting fees. And while the provider will want a margin of comfort to cover the unforeseen, it does not have to make a profit from every property bought through its fixed-price option in order to make a profit overall. It is a situation not unlike that with insurers, longevity estimates and the annuity pool.
Complicated, clearly
You might think a fixed-fee packaged solution for Sipp property gives the opportunity to bundle fees for simplicity. However, in practice the effect is the opposite as each extra element – a mortgage, VAT, multiple owners, multiple tenants and so on – adds to the cost. They would all need building in to a bundled fee or the provider would attract too many loss-making cases. So fixed-fee options are always likely to be more complicated compared to time-cost, which can expand as much or as little as needed, but offer the reassurance of definitive amounts, which time-cost cannot.
Of course, the actual purchase price and stamp duty aside, the biggest cost of purchase is usually not the Sipp provider’s fees but the solicitor’s. They face very similar considerations to Sipp providers. A small but growing number, likely with a dedicated team experienced in Sipp (and Ssas) property cases, have developed fixed-fee offerings of their own in response to the very human aversion to uncertainty over their fees. In setting the level of these, they find themselves in a position akin to Sipp providers and are likely to have a relatively complicated but explicit menu of fees.
This potentially opens up the possibility of ‘mixing and matching’. For instance, the provider could allow the use of a solicitor who operates on a fixed-fee basis, providing certainty over one of the main costs of purchase, in conjunction with a more ‘open-architecture’, time-cost approach to purchase and ongoing administration fees. This might mean, for example, the client doing their own rent collection to reduce fees but, say, using a block insurance policy, benefiting from the Sipp provider’s buying power. The exact blend would depend on the client’s needs and what the market offers.
Based on a sample of providers known for Sipp property that we used for research, we found clear divisions in approach with a near even split between fixed-fees and time-cost. If indicative of the whole market, this may represent a missed opportunity.
