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Skipton advice arm hit by £5.6m refunds guarantee and redress bill

Skipton-branch-480-2013

Skipton Building Society’s financial advice division has set aside a total of £5.6m for commission rebates for fund underperformance and customer redress relating to a past business review.

In a statement published last week ahead of its full year results later this month, Skipton reported its financial advice division, which covers investment, protection and mortgage advice, posted a pre-tax loss of £900,000 in 2012 compared with a pre-tax profit of £2.9m in 2011.

The division, which incorporates Skipton’s investment advice arm Skipton Financial Services, incurred charges of £3.3m in 2012 for commission rebates.

Under its “monitored informed investing” proposition, Skipton Financial Services offers customers a rebate on ongoing charges if a fund underperforms against its peers.

If a fund returns a fourth-quartile performance over a year, ongoing charges will be refunded. The rebate continues to be paid while the fund remains in the fourth quartile.

Over the past year rebates have been triggered by funds such as Thames River Distribution, Jupiter Merlin Growth and Jupiter Merlin Worldwide.

Skipton’s financial advice division has also increased provisions for customer compensation from £1.8m to £2.3m. This relates to “documentation of advice” failings following a past business review. Skipton says it was not involved in the FSA’s assessing suitability review or its recent mystery shopping review into bank advice.

Overall Skipton Building Society has posted a pre-tax profit of £36.4m for 2012, up 64 per cent from £22.2m in 2011.

A Skipton spokeswoman says: “Because the promises under monitored informed investing are of genuine value to customers, they can result in significant cost to the business. Nevertheless, Skipton Financial Services remains committed to offering MII.”

Evolve Financial Planning director Jason Witcombe says: “I do not think these MII promises are sustainable.”

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