When interest rates collapsed, Sipp providers lost a major income source from the margin they retained by paying less than the going rate for cash deposits held in their plans. They all rushed to raise their fees to compensate, just as Axa raised the issue of the price of wrappers falling to zero.
I realise that the price falling to zero does not fully remove the cost – there will always be fees due regarding transfers in, for example – but those fees fall on the service users and are not cross-subsidised.
Standard Life’s decision to raise fees by 4 per cent reflects the fact that the insurance company approach to administration, in simply throwing more people at it instead of improving the processes, simply locks you into spiralling costs.
The RDR is starting to bring inefficiency into focus but few providers use straight-through processing (STP) and, until they do, using more people as the solution is inevitable. This is not a long-term fix and we need to move to standard electronic applications for all requirements.
The idea that marketing departments are needed to design forms is crazy. Forms are the financial equivalent of buckets – they need to be free of holes and have the necessary capacity for the job.
Raising prices may seem a reasonable solution but it is going against the trend to nil-cost wrappers. Providers who believe they can raise plan prices each year probably also feel that 25 basis points is a base level for wrap charges.
For those with that mindset, as the RDR approaches, I would best describe their position as plumbing. After all, how many insurers have delivered superb investment performance? I would recommend they seriously consider their future role.
Moving to sell direct to consumer keeps the City analysts happy but that is due to their ignorance of how retail financial services works.
Selling direct is a great idea but you need to attract enough customers. As IFAs start to segment their client base, the number of orphan clients real or imaginary (IFA clients accidentally approached) will decline rapidly.
This leaves you with the issues that direct sales teams faced in the late 1980s. This led to poor practices as they do not grow profits.
A major barrier to downsizing properly has always been the fact that the salary packages of many in senior posts in providers are based on the number of people who report to them.
Surely, it would be best for this barrier to efficiency to be removed. I regret that my plea will be in vain, given that many of the CEOs of the providers will be able to retire just ahead of Hogmanay 2012. This Titanic-like approach to the RDR icebergs can only end in one way.
Taking a bean-counter approach to strategy is reminiscent of the worst that management consultants offer – anyone can increase costs and cut overheads. Both have an impact on the quality of service if investment has not been made in STP.
On a different matter, I noted in a recent article in MM that the CII has been criticised for not providing member services to non-members. Can I suggest those who seek this support try the same at any organisation that charges a membership fee.
Robert Reid is managing director of Syndaxi Chartered Financial Planners