Skipton Building Society has scrapped its underperformance rebate for 39,000 investment advice clients after privately admitting the rebate was too expensive at a cost of £11.3m.
Skipton has told clients the feature has been withdrawn because it is unpopular.
The rebate was originally offered as part of a proposition with Skipton Financial Services called Monitored Informed Investing.
Skipton Financial Services was rolled into its Skipton Building Society parent last summer.
The rebate was a guarantee that, if clients’ MII investments underperformed against the sector average, Skipton would pay the clients’ annual 0.75 per cent ongoing charge back until performance improved.
Money Marketing sister title Mortgage Strategy understands Skipton has between £2bn and £3bn invested through the scheme.
Skipton announced it was ending the MII rebate from 1 January 2017 in a letter to its 39,000 investors on 12 December.
An unpopular option?
In the letter, Skipton says the rebate option was being pulled because it was unpopular.
The letter says: “Following customer research we have found this is one of the least valued MII features, and so we have made the decision to no longer offer it.”
But an internal Skipton email from December, seen by Mortgage Strategy, says the rebate was being scrapped because it was expensive, costing Skipton £11.3m since the launch of MII.
The email, written by Skipton Building Society director of financial advice Matthew Leach, says customers “appreciate the rebate”, though not as much as services like fund switching, and that the firm is withdrawing the rebate due to its expense.
It says: “As we have been considering for a significant period of time and as we have communicated at adviser roadshows, including the most recent set in October and through business update briefings, we have been reviewing the MII service especially surrounding the underperformance reimbursement/waiver.
“We have explained due to how this is structured it has sometimes proven very difficult to predict how and when this feature will have an impact and therefore causes many challenges surrounding planning for it as well as planning for future investment in the business and our proposition.”
A Skipton spokeswoman says: “We continually review our product offering to ensure they best meet the needs of our customers and our wider membership. Since 2009 we’ve issued 25,000 questionnaires about MII.
“The questionnaires specifically ask customers about each of the MII features with the overall response showing the underperformance reimbursement to be one of the lowest they rank. This recent and significant direct feedback from MII customers has understandably been a factor in our decision to withdraw this feature, and due to the removal of this feature, we have actively reduced the ongoing charge for existing customers.”
The ongoing charge is now 0.72 per cent.
Skipton declined to share the latest MII satisfaction figures.
But a Skipton sales brochure called “What our clients think about MII and SFS” says 87 per cent of SFS clients thought the underperformance rebate was a “very good or excellent” feature of MII between July 2009 and February 2011.
The only feature to get a lower ranking was the MII’s online facility, which was still valued by 78 per cent of customers.
Skipton first launched MII in July 2009.
In 2013, Skipton’s financial advice division set aside £5.6m for commission rebates for fund underperformance and customer redress relating to a past business review.
Skipton said its financial advice division, which then included Skipton Financial Services, incurred charges of £3.3m in 2012 for commission rebates.