Skipton, this change leaves a sour taste
BUILDING societies tend to have a special bond with customers, be it savers or borrowers. Although they are not averse to repossessing your home if you do not keep up with the mortgage payments or paying you the square root of nothing on your savings, they care more than banks.
Most pride themselves on customer service, invest in their branches (rather than close them down), and treat most customers fairly most of the time. Primarily a force for good, then, in a financial world where such traits are not always to the fore.
Against this backdrop it is disappointing to see that Skipton Building Society is now imposing changes on some of its customers that from the outside at least can only be described as unfriendly.
They affect 39,000 customers which it attracted through its former adviser arm, Skipton Financial Services, offering them the opportunity to have their investments managed expertly.
Nothing unique in that proposition (all banks, advisers and investment companies promise the world) but what made Skipton’s investment proposition so different – so appealing, so special – was that it committed to doing things the right way. To treat customers fairly and, as its website boasts, to provide ‘trusted and clear advice’.
The 39,000 investors bought into a service called Monitored Informed Investing (MII) overseen by advisers employed by Skipton Financial Services.
I shall push to one side the fact that the service’s upfront cost was a hair-raising 4.5 per cent on investments up to £150,000 – reducing in increments to 0.5 per cent on sums above £750,000 – and concentrate on the good aspects.
The ‘good’ part of MII was that Skipton guaranteed to rebate customers the annual charge for running their investment portfolios – 0.75 per cent – if the performance of chosen investment funds failed to live up to expectation (underperformed their peer groups).
Advisers were encouraged to promote this guarantee, telling new customers that Skipton wanted to share the financial pain if their portfolios did not perform satisfactorily. How virtuous.
For seven years, Skipton has honoured this promise – and how expensive it has proved to be. Through poor fund selection, it has cost the society £11.3million as spelt out in a memo to advisers late last year by Matthew Leach, director of financial advice. But the rebate is no more. At short notice, it has been withdrawn. Rather disingenuously, it has told customers impacted by the change that the rebate is being axed because it is considered ‘one of the least valued’ features of MII. This is even though the vast majority of customers in surveys regularly rated the underperformance rebate of the ongoing charge as ‘very good’ or ‘excellent’.
As a sop, Skipton has said it will be reducing the ongoing charge for customers, from 0.75 per cent to 0.72 per cent, although initial charges will remain at the same (high) level. There are also platform fees on top although these are applied by Cofunds, the administrator of Skipton’s service, and of course there are the underlying fund fees.
The axing of the rebate has not just shocked and upset customers. A number of Skipton advisers have contacted The Mail on Sunday to vent their displeasure at the move. Having sold the service partly on the back of the rebate guarantee, they are now understandably embarrassed to have to stand before clients and defend the move.
They know the real reason for the withdrawal of the underperformance rebate – cost.
Skipton has form in breaking guarantees. Back in the immediate aftermath of the financial recession in 2010, it ripped up a mortgage guarantee designed to protect many of its borrowers from rising interest rates.
Some 60,000 customers were told that as a result of exceptional circumstances, a promise ensuring their mortgage rates would never be more than three percentage points above base rate was being abandoned. The result was that when they came off a special deal, such as a tracker or fixed rate, the mortgage rate they went on to was not 3.5 per cent but 4.95 per cent. There is still a chance this decision could come back to bite the society and land it with a compensation bill.
On Friday, Skipton insisted the changes to its MII proposition were made to ‘ensure they best meet the needs of our customers and our wider membership’.
It also reiterated that of the 25,000 questionnaires it had sent out on MII since 2009, the underperformance reimbursement feature was one of the lowest ranked. Fine, but the episode leaves a sour taste in my mouth and those of some of its own advisers. Building society behaviour at its worst.
Axing the rebate has not just upset customers – its own advisers are shocked, too