Cash Deposits giving SIPPs a bad name?
Not sure what was the more depressing over the weekend, Robert Green's hand to eye coordination or what I read catching up on some pension stuff.
The subject of cash deposits in SIPPs reared its ugly head again in an article posing questions of rip-offs, with lots of responses to the article being very negative about SIPPs in general. It's clear that this issue hasn't gone away and it is giving SIPPs a bad name.
I think the attention towards margins earned is a smoke and mirrors job frankly - other financial companies earn these margins and the FSA accept the position. The real issue, the elephant in the room is the lack of a decent bank deposit option from many SIPP operators, who restrict cash to the default bank account with its low rate of interest.
Many SIPP clients do want to hold cash deposits, for a variety of reasons. I find it completely bizarre that a SIPP operator can boast of thousands of funds being available, but for cash on deposit there is only one account paying a low rate of interest. I suspect many clients would prefer a few less fund choices and a few decent options for cash deposits!
This is one area where low-cost SIPPs really can be a false economy. Currently the difference between the bank interest rate in many basic SIPPs and a decent rate of interest is around 2% p.a. Even for a modest sum of £10,000 cash, that's an extra £200 p.a., more than the cost of moving up to a SIPP which allows a range of cash accounts. Our own SIPP annual fees start at £245 p.a. and for many clients the flexibility on cash deposits would in itself more than cover our fees.
Worries by advisers about the regulator's views on SIPP fees compared to more basic products can be a factor in this. It sometimes affects me when I'm extolling the virtues of our SIPP at £245 p.a. but I'm competing against a platform SIPP at £150 p.a. It's not just about costs, though, lots of other issues are important. Service is important as is earning a proper rate of interest on cash which can really make a big difference.
Essentially my point is that advisers should differentiate between cost and value. I'll keep pushing our message on this and hope to convince as many of you as possible of the good sense of what I'm saying. What worries me though is that the SIPPs with no options for cash really are giving the industry a bad name, judging from what I'm seeing in the press.