IFAs demand fee transparency after cash account revelations

Advisers are demanding increasing transparency over self-invested pension fee structures, according to a survey from provider Liberty Sipp which found that 100 per cent of respondents would like companies to be less opaque about how they make profits.

Earlier this year, FTAdviser revealed that up to 40 per cent of revenues at some Sipp firms was derived from withheld account interest, that is to say the difference between the bank rate offered to clients and the amount being paid by the bank.

John Moret, principal of consultancy business MoretoSipps known widely as ‘Mr Sipp’, said data produced by the firm shows six firms produce more than 10 per cent of their revenue from withheld interest on client cash accounts, with the figure at one firm standing at 40 per cent.

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A survey published in FTAdviser sister title Money Management among 70 Sipps firms revealed 55 pay an interest rate that is less than the current record low 0.5 per cent bank base rate, with around 25 paying zero per cent.

Liberty Sipps’ survey, conducted among 112 IFAs on its database, found that all respondents felt providers should be more transparent.

New disclosure rules being forced on the sector require advisers to give advisers information equivalent to that provided by personal pensions on the rates charged and the likely returns, but Mr Moret said the lack of a prescription in terms of how cash account rates are displayed could leave the door open for providers to come up with “disingenuous ways of disclosing”.

The survey also found the reputation of providers of self-invested personal pensions has worsened over the last 12 months in most advisers’ eyes, as debates over capital adequacy and revelations over scandal-hit esoteric assets have dominated headlines.

More than half of respondents to the poll believed Sipp providers’ reputations had worsened in the past 12 months, while only one in four believed it had improved.

When asked about the level of due diligence they carry out on Sipp providers compared to one year ago, almost two thirds said they were now much more thorough. Just over one third said they are still likely to push more business towards Sipp providers while slightly more than that said they would not.

John Fox, managing director of Liberty Sipp, said: “The results of our survey make some uncomfortable reading, and should serve as a wake up call to the Sipp industry.

“In the past year it has been through a de facto RDR, which though not as obvious or intrusive as that endured by IFAs, has concentrated minds and forced many to get their house in order.”