Clerical Medical has come under fire for pulling out of a charges deal on its Retirement Selection Plan (RSP), a version of the James Hay SIPP.
The move means around 2,000 clients currently paying an annual management charge (AMC) of 0.5% on the plan may now have to pay 1.25% and has led to a complaint by an adviser to the FSA regarding treating customers fairly (TCF).
Since the launch of the RSP in 1997, Clerical Medical has paid the underlying James Hay fees on the plan when clients had £30,000 or more invested in its funds. Adviser clients say the arrangement was the product’s main selling point.
But now the company says it is “unable to continue” with the charges arrangement, with a lack of profitability on the product understood to be the cause. The arrangement is set to come to an end on 30 September.
Clerical Medical says the charges on the RSP, which closed to new business four years ago, have been “amongst the lowest in the market” and argues the move simply brings them in line with the competition. It also claims its actions are not anti-TCF.
Clients invested in the RSP have been informed they will, in September, move on to the James Hay eSIPP, another version of the provider’s self-invested proposition.
It will mean a hefty hike in the AMC in some cases but will, in every case, result in an increase.
Under the original RSP terms, investors that had been in the plan for under five years pay a 1% AMC which includes, in most cases, the financial adviser’s 0.5% commission. Those that have been in the RSP for five years or more qualify for a loyalty bonus, halving the charge to 0.5% and still including the adviser’s share.
However, the AMC on the eSIPP is 0.75% and does not include the adviser’s commission or offer a loyalty bonus. It will mean that clients currently paying either 0.5% or 1% AMC will likely pay 1.25%.
Financial adviser Colin Stratton, of Page & Page Financial Services, says the move “runs counter to TCF”. He has written to the FSA and Clerical Medical in a bid to have the move disallowed.
“[Clerical Medical] is trying to renege on this clearly stated fundamental consideration that formed a large part of the decision to place business with them,” he says.
“In these days of principles-based regulation and the six outcomes it appears that this imposed change will breach one, two and five, representing the breaking of half of the desired TCF outcomes.”
He adds one of his clients will now see their annual charges climb from £1,400 to £3,500 if they decide to stay in the RSP, and points out that setting up a new plan with another provider could prove equally costly. He says he expects Clerical Medical to “honour the commitment within the product literature”.
But a spokesman for Clerical Medical says: “We have been upfront and timely in our customer communications. Realistic increases in charges do not run against TCF.
“Clerical Medical have been preparing with James Hay for months to make the transition as smooth as possible for advisers and their customers.
Customers continue to be James Hay SIPP customers after these changes. They will have access to over 1,300 funds, including Clerical Medical funds via the James Hay Investment Centre.
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**HAVE YOUR SAY:**
"I think this story is key in the SIPP costs argument. I think it is about time Advisors fully realised that there is widespread subsidisation of headline fees in SIPPs through backdoor methods such as creaming off a proportion of the interest rate on the default bank account, or by receiving a rebate of the annual management fees from “recommended or connected funds”. SIPP costs should be transparent and fully disclosed, end of story." Martin Tilley, Dentons Pension ManagementIFAonline
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