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Friends Life imposes 21% fee hike on 2,000 Sipp investors

Friends Life has come under fire after the insurer hiked Sipp fees 21 per cent for 2,000 policyholders in response to rising regulatory costs.

The provider is contacting Sipp clients six weeks before their anniversary date – when the increase comes into effect – to warn them about the fee rise.

A Friends Life spokeswoman says the decision comes in response to tougher Client Money and Asset Return regulations introduced by the regulator in 2011.

She says: “We are increasing the policy fee of some Sipp products to cover the additional costs incurred as a result of Client Money and Asset Return regulation. This increase follows a number of years where no fee increases have been required.”

She says the regulations have meant additional responsibilities and reporting activity for the banking, assets and compliance teams, plus the cost of external client assets sourcebook audits.

She adds: “We have managed to absorb the additional costs since 2011, but it is now necessary to increase the charges on the policies to cover them.”

First Financial IFA principal Graham Franklin says: “I have three clients with commercial property in a Friends Life Sipp and it is not possible to complete a transfer in six weeks.

“The Sipp fees are paid in advance, so as things stand my clients will have to pay 10 months of fees to Friends Life even though they will no longer be the administrator.

“That is not fair and it smacks of a provider wanting to get out of the Sipp market.”

More to Sipps principal John Moret says: “A 21 per cent increase in fees will make Friends Life extremely uncompetitive and sends a signal that they no longer want to play in the Sipp market.

“I expect we will see more of this sort of activity from firms who do not see Sipps as a core part of their business.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. I dont really see a problem with this.

    Increased costs driven by regulation need to be passed on to consumers if companies are to be successful.

    I suspect that there will be many others following suit.

    As for the adviser who stated that properties cannot be transferred in six weeks:

    1 – they can if you use the right parties;
    2 – thats what happens when you buy illiquid assets.

  2. Why would anyone use Friends Life for a SIPP and presumably those that have will now be transferring. Another vulture fund shows its colours.

  3. Harry, I always look forward to reading your comments, level headed and with common sense but these clients have had their SIPP since 2001, initially with Winterthur, then AXA Wealth and finally Friends Life. It costs about £3-£4K to move a SIPP with property so you don’r want to move it unless you have to. But I agree starting from now or in the recent past you would never use Friends Life.

    With regard to Gordon, yes companies will always say transfers can be done quickly, the reality is that is very rarely the case, I prefer to live in the real world. Surely commercial property held in a SIPP is a major advantage of having a SIPP, the illiquid nature of the asset should not be an excuse to set penal fee increases and even more penal terms of exit.

  4. @ Graham Franklin

    I have been involved with many urgent property transfers so it can be done – providing all parties co-operate of course!

    Re the fees – I may be wrong but my understanding is that this relates to additional regulatory requirements. The more onerous and expensive the regulation the more providers (and advisers) will have to increase their fees.

  5. @ Graham
    Yes I do realise that. Indeed I did have a client in a Winterthur SIPP. The service was so bad that we transferred out and the property transfer wasn’t that terrible.

    As far as property in a SIPP is concerned I have to say I’m not all that keen anyway. As has already been stated an illiquid and cumbersome investment, but it can be useful when the rent is added into the fund. However many clients are put off when they realise it is not they who own the property and they have to suffer all the admin hoopla of being told what to do with something they regard as their own. Indeed SIPP providers like property as it tends to tie in the investor and it hikes the fees.

    Indeed I have a solution where individuals can buy the property in their own names (personally – not in a pension) in a reasonably tax efficient way. The great advantage is that the asset is then their personal property and the income from the rental can be theirs for as long as they wish – without the associated drawdown rules and fees.

    PS Thank you for your kind comments – flatterer!

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