Sippdeal shocker (& link to template complaint letter)

Snooper66

This is the first time I have posted on MSE, but some of you may recognise the name Snooper66 from Fool.

This is quite a long post, but hopefully goes some way to explaining our position generally on fees and also more specifically on transfer out charges.

I won't reiterate any of the points made below, other than to say the first section in italics is a copy of my recent post on Fool and the second section sets out our position on transfer out charges in the context of the Ombudsman determination.


Post from Motley Fool

Apologies for the slight delay inresponding to the various points and questions raised. I have not had my comments checked by the business so please take them in the spirit of someone trying to help rather than a formal response.

It is not possible to please all of the people all of the time and I do thinksome of the comments are unfair. We have always tried to be one of the best value platforms in the marketplace and the support from this Board over the years would suggest we have largely achieved this. Our charges should be considered in the context of what the market charges, rather than purely compared against what we have charged in the past. We have been guilty of keeping our charges too low for too long and I have fought internally for along time to maintain the "no annual fee" for SIPPs that I know is so popular. However when presented with the numbers, I could not logically argue against the new charging structure. As well as addressing the cross subsidy point, the burden of IT, regulation, risk and compliance have all increased dramatically over the years and there is a cost to these.

Some specific points:-

VAT

There is no VAT on either the SIPP custody charge or the fund charge.

Timings of fees

Our custody charges will be calculated based upon the closing mid price valueof your SIPP and/or any clean funds you hold in your SIPP, ISA, Junior ISA orDealing Account) on the last business day of each calendar quarter – March,June, September, December.

We expect to collect the charges due within 20 business days of the respective quarter end period, so for the first charge period in 2014 we will collect thecharge toward the end of April 2014.

We will send a reminder that our charges are due around the end of each quarterto help you manage your available cash position.

We could have deducted the new custody charges from 1 January 2014, but chosenot to.

0.2% pa fund charge (capped)

I have covered this in my previous post. For existing customers, this is mostly a voluntary charge. For those that want to keep their 1.5% AMC funds, they will not incur this charge as long as we get a payment from the fund manager. For those buying clean funds, the total cost of ownership of a fund will in the vast majority of cases be cheaper.

Our net revenue on funds is moving from circa 0.5% pa (being the payment we receive from the fund manager less annual fund rebate we pay) to a capped 0.2%pa.

Also, whilst there is quite a bit of work involved in converting into clean funds, we debated whether we should charge for this, but chose not to.

Paying our charges personally

Whenever we have looked at this, there has been little appetite from customers. Particularly for SIPPs, the consensus has been that customers wanted tax relief on their charges. We recognise that it will suit neither us nor you if there is not enough cash to pay our charges. This is something we will keep a close eye on and we are already looking at functionality such as auto disinvestment tohelp you keep as much of your account invested without ending up running into cash flow issues re paying charges.

ISA account fee

We have done a full review of our fees and concluded that an account fee for an ISA (and Dealing Account) is not justified. Whilst there are no guarantees in life (that are worth anything) it would be extremely disingenuous of us to introduce such a charge at anytime in the foreseeable future.

Minimum investment size into clean funds

The earlier post on Ruffer funds highlighted an issue that I have been aware offor some time. Although some funds may display minimum investment levels, inpractical terms these can be ignored as the fund manager will treat us as a single holder and once that minimum has been reached, additional investmentscan be made at very modest levels.

SIPP custody fee

Probably the most controversial of the changes and one which we introduced witha heavy heart. We have tried to keep it simple and fair - two forces that pull in different directions. In the context of what the market charges, I still believe this represents good value for money, accepting that some people willjustifiably see it as a big hike from what they have paid previously.

SIPPS are in the FCA's spotlight. They are carrying out their third thematic review in just a few years which highlights how concerned they are. Regulatorycapital is about to be increased dramatically (particularly for smaller SIPP operators) and this will have implications.

Transfer out charges

There are a couple of aspects to this.

Firstly the general principle of transfer charges. There is manual work involved in transferring out, particularly where stock is being transferred. Improvements are being made in electronic re-registration but there is a long way to go before it is truly automated. My sense is that this isn't a profit centre for any investment platforms but I also sympathise with the view that there isn't as much downward pressure on these charges as in other areas. Thisis an issue that the FCA is aware of and it will be interesting to see if they decide to start imposing their authority in this area.

Secondly, the issue of free transfers out on a price change. We agreed a position with the regulator some time ago that if we changed our transfer out charge then we would need to give 90 days notice and any transfers up to that date would be at the old rather than the new charge. Otherwise the transfer out charge was valid even on an increase in charges or wider change to terms and conditions.

The industry has reached a rather uncomfortable position where most of us are paying the transfer out charges of the ceding provider which does seem a bit mad. Whilst aware of the various rulings and precedents in this area, we believe our position is fair.

Fixed charges v ad valorem charges

We have tried to balance the simplicity v fairness argument with our charges. Ad valorem charges protect us to the extent that the higher value account carries a higher risk to us should something go wrong. They also help the smaller accounts get on the ladder. Fixed fees hurt the smaller value investor and we have tiered our SIPP custody charge to help this group as much aspossible. There will always be winners and losers here but we aim to be a broadchurch and appeal to a wide a range of investors as possible.

Other providers

I rarely comment on other providers as it really is none of my business. However, what I would say is that many firms have yet to announce their post RDR pricing and any comparison will only be valid when there is full visibility. One of the firms who announced early has already stated that they will look to review fees again to provide capital for investment into systems. I would also suggest that profitability of the investment firm is a key component of any due diligence you carry out. There are very few firms makingany money in this industry and at some stage something will give eg pull out of market, sell business or put prices up. Our report and accounts can be found on our AJ Bell website.

We focus on service, price and functionality and getting either one of these out of kilter with the other can be disastrous. We will be earning less money per customer and per pound of asset in FY14 than we did in FY13, which in turnwill be less than FY12. We remain profitable with a very healthy balance sheet and have priced AJ Bell Youinvest to continue growing and to be one of the best value investment platforms there is.

I hope I have gone someway to answering the questions raised, almost certainly not as far as some would like, and I will continue to monitor this aboard andchip in if I can add anything.

Thanks for all your support and constructive comments.

Regards

Snooper


…and now our position on transferout charges:-


It is suggested that we aren’tentitled to increase our charges without offering customers a free transfer out as a consequence of the decision of the Financial Services Ombudsman adjudicator in the recent Malfesto v F&C Management Limited (F&C) case. In view of which I have set out below an explanation of why that is not the case.

One of the key factors taken into account by the Financial Ombudsman Service adjudicator in reaching his conclusion in the Malfesto case was that F&C’s terms and conditions, did not specify the valid reasons for increasing charges. So, although the adjudicator considered that F&C did have valid reasons for increasing itscharges, because these reasons were not set out in F&C’s terms and conditions, the adjudicator concluded that F&C had to allow customers to transfer out free of charge.

In our case the position is different because our existing terms and conditions do clearly set out the valid reasons why we may increase our charges. These reasons include changes in regulatory requirements; changes in the operation of the markets, investment dealing or administration and ‘to avoid cross-subsidy between (customers) e.g. where the provision of certain services is being charged on an uneconomic basis’. The summary of the changes, on our website, indicates the reasons for the increasein our charges.

So, given that the reasons why we may increase our charges are set out in our terms and conditions and it is for a number of those reasons that we have increased our charges, we do not believe that we need to allow customers the option to transfer out free of charge.Customers may transfer out subject to the current transfer out charges.

I hope this helps.

Regards

Snooper66

westy22

Snooper66 - thank you for your detailed and informative post - it is always interesting to hear the viewpoint from inside an organization and I think it is great that you have shared your business plan thinking directly with your customers.

As so often happens, it is often the way in which a change is introduced rather than the change itself that upsets people. Last year's debacle with Interactive Investor was proof of that as most people were far more upset by their aloofness and intransigence than they were by the increased charges.

I feel reassured by your post and think you have addressed my initial concerns.

SnowMan

I completely disagree Snooper that you are able to increase charges in this way without allowing a penalty free exit.

Please don't mislead customers into thinking they haven't got a case in challenging the outrageous behaviour of Youinvest.

If investors think they have been treated unfairly I would strongly urge them to complain to Youinvest and then take the matter to the FOS. It is for the FOS to make a decision and my guess is that investors have a very strong chance of having their complaint upheld by the FOS. I took forward a very similar unfair terms case (not the Malfesto case) where the platform also told me categorically there was no chance of the case succeeding. The FOS upheld the complaint.

The FCA guidance I mentioned earlier makes it quite clear that you cannot make an arbitrary increase to charges. It sets out how companies try to give themselves too much discretion on how to change terms (an important aspect here, you can't just twist a change into being for a regulatory reason) and also confirms that fee free exit should be allowed.

You also need to draw the distinction between whether a term is unfair and whether the firm applies the term to you unfairly in a particular scenario. If the firm have applied the term unfairly to you as an investor then you have a strong case.

I began investing with Youinvest in early 2013 on the basis of clean funds and an explicit charging structure i.e. RDR compliant. I have now been given 30 days notice (I accept the point about it being more than 30 days in practice) of a quadrupling of my platform charge from £50 to £200 and Youinvest want to charge me almost 3 years platform charge (£140) to re-register away. That is ridiculous and is the argument of a morally bankrupt organisation in my view.

Youinvest it is not too late to reconsider your position and temporarily waive exit charges. I will happily admit that I have found Youinvest a good platform to use, and I think their staff have been very helpful whenever I have rung. But Youinvest can't treat customers in this way. Please don't tarnish your reputation by persisting with this un-tenable position.

It is clearly unfair in my view not to waive the exit charges and the legal technicality that you are trying to use to perpetrate that unfairness I would suggest doesn't exist.

To try and justify the change on a regulatory change that doesn't apply to people already charged explicitly (regulatory changes that started about 5 years ago in any case and were known about at the time many investors invested with Youinvest) won't work when cases are adjudicated on by the FOS in my view.

It also calls into question why Youinvest set up an explicit charging structure which they were going to dismantle, quadrupling charges in many cases. Is that treating the customer fairly if you charge them 3 years charges to leave?

It is quite sad also that at the same time that Youinvest are refusing to waive exit charges in scenarios such as above, that they have an offer to pay exit fees for investors switching to Youinvest of up to £500.

On the Motley Fool website a suggestion has been made that Sippdeal were advertising the no account charge aspect of the SIPP through a magazine campaign. I don't know what the truth is there but perhaps Snooper could tell us whether there was such a campaign, and when the last advert was that prominently mentioned the no account charge aspect of the SIPP.

To summarise if any investor thinks they have been treated unfairly (i am not suggesting they complain otherwise), complain to Youinvest and take your complaint to the FOS. I've been through the process of going to the FOS and it is straightforward. I genuinely believe you have every chance of having your complaint upheld although it may depend slightly on individual circumstances.

I do appreciate Snooper that you have had the bottle to explain the position albeit that you are trying to defend the indefensible re the refusal to waive the exit fee.

malfesto

[FONT=&quot]If you want an assessment whether the firm's position regarding transfer out charge is in line with the law, you might also want to register a complaint with the Unfair Contract Terms Team at the FCA (Google search - "Report an unfair contract term - Financial Conduct Authority").

You will get an assessment about the FCA's view of the Term used to make contract amendments and the firm's conduct in compliance with the law. I have used this assessment as evidence against F&C (not mentioned in the adjudication text) with the Financial Ombudsman.[/FONT]
[FONT=&quot]
[/FONT][FONT=&quot]I think you will find that the FCA takes a view more favourable to the consumer. [/FONT]
[FONT=&quot]
Regards,

malfesto.[/FONT]

SnowMan

malfesto wrote: »

[FONT=&quot]If you want an assessment whether the firm's position regarding transfer out charge is in line with the law, you might also want to register a complaint with the Unfair Contract Terms Team at the FCA (Google search - "Report an unfair contract term - Financial Conduct Authority").

You will get an assessment about the FCA's view of the Term used to make contract amendments and the firm's conduct in compliance with the law. I have used this assessment as evidence against F&C (not mentioned in the adjudication text) with the Financial Ombudsman.[/FONT]
[FONT=&quot]
[/FONT][FONT=&quot]I think you will find that the FCA takes a view more favourable to the consumer. [/FONT]
[FONT=&quot]
Regards,

malfesto.[/FONT]

Good suggestion. In fact I've already done that earlier in the week via this link.

And if you have invested on the result of what you believe to be a misleading advertisement e.g. about charges you can also report it to the FCA here

Well done on your successful Ombudsman referral by the way, I love the way you refused to accept the ex-gratia offer made by F&C :T

koru

There has been quite a bit of discussion on this thread about alternatives for disgruntled customers of sippdeal. In addition to ATS, you might like to consider Interactive Investor. Like ATS, they have a flat fee. But they differ from ATS in two important respects which might mean they are considerably cheaper for some people.

First, although they charge £80 per year, which is higher than the ATS flat fee, this covers ISA and unwrapped dealing accounts for you and your family, so for instance my wife and I, plus my father, my mother, my brother and my mother-in-law have 11 accounts with Interactive Investor and the account fee is £80 in total, so we each chip in £8 per account.

Second, they give a trading credit of £80, so the account fee actually costs nothing as long as you are fully using the trading credit. I don't, but I do use some of it.

On the other hand, they did badly handle the transition from their previous fee structure, as mentioned above. I will understand if people feel they don't want to switch to Interactive Investor for this reason. It was silly of them to insult the intelligence of their customers by trying to pretend that the changes were being made for the benefit of their customers. Clearly Andy Bell has learned that lesson! But, to be fair, I think they did suffer from being the first to make this sort of move and in retrospect their fees seem a lot more reasonable than they did at the time. Also, bear in mind that Interactive Investor did eventually agree to waive fees for customers transferring out as a result of the fee hikes, so they are probably more likely than other platforms to do so again if they feel a need for another major hike.

Linton

Another lesson from the iii case I think is that people here get over-excited. It would seem many could have left iii to go somewhere that is now looking more expensive. Perhaps it would be better to wait for every supplier to come up with their post RDR charges and move forward on the basis of full knowledge.

westy22

Linton wrote: »

Another lesson from the iii case I think is that people here get over-excited. It would seem many could have left iii to go somewhere that is now looking more expensive. Perhaps it would be better to wait for every supplier to come up with their post RDR charges and move forward on the basis of full knowledge.

Is that even feasible though? Platforms seem set to be similar to energy deals in that as soon as you sign up for one deal a better one comes along the following week. Of course, changing energy supplier is much cheaper and easier then changing platform providers.

Linton

westy22 wrote: »

Is that even feasible though? Platforms seem set to be similar to energy deals in that as soon as you sign up for one deal a better one comes along the following week. Of course, changing energy supplier is much cheaper and easier then changing platform providers.

Prices havent changed much in the past. Its just volatile now because RDR has forced everyone to reconsider the whole basis of their charging. But I would think in a few months time things should settle down. A few months is surely worth waiting for you to be sure the platform you are moving to is actually an improvement.

SnowMan

Linton wrote: »

Another lesson from the iii case I think is that people here get over-excited. It would seem many could have left iii to go somewhere that is now looking more expensive. Perhaps it would be better to wait for every supplier to come up with their post RDR charges and move forward on the basis of full knowledge.

I think it is sensible to wait until your own platform comes up with its own post RDR charging structure and then look to move (or not).

However when they do and if it is a significant increase then that is the time to consider re-registering away. You lose any options to get the exit fees waived on re-registering away if you delay further. That is the danger of waiting until every supplier comes up with their own RDR structure.

Each to their own of course.