How platforms retain interest payments gained from client bank accounts has come under fire, yet many SIPP providers do the same practice. Fiona Murphy asks how this affects the SIPP market.
Recently battle lines were drawn in the wrap market on whether it is right for providers to keep any interest earned on clients’ bank accounts.
The issue sparked two debates. The first is around issues of disclosure and whether providers are notifying customers and their advisers. Any deviation from this could be seen as contrary to the spirit of the Retail Distribution Review in maintaining transparency with consumers.
The second argument is whether it is right for providers to keep any interest retained in the first place, although many providers do return a proportion of interest earned back to the customer.
This practice is also prevalent among the majority of SIPP providers. Anecdotal evidence suggests many smaller players are heavily reliant on bank interest as a revenue stream.
This was backed by Morettolife director John Moret who said for many firms, two-fifths of their revenue comprises interest retained on bank accounts.
Suffolk Life head of marketing Greg Kingston says: “The issue the Financial Conduct Authority (FCA) has raised is not that it’s a poor practice, it’s of disclosure. They must clearly state now under the new rules what the SIPP provider is receiving.
“In the past there were two levels to this, one is the difference between what the investor and SIPP provider gets. The other issue is the interest rates weren’t being disclosed by some providers at all. Nor was the fact some interest may be retained. That’s what the regulator is trying to drive out, not the actual practice itself. It wants to make sure the consumer actually knows.”
However, the SIPP market has come some way in addressing some of the transparency issues that have hindered it in the past.
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