The impending changes to the Banking Code address many of the concerns that have been raised in recent times and Defaqto applauds these initiatives.
However, in one particular respect, Defaqto would like to see a further extension of the Banking Code. This relates to ensuring that easy access savings accounts that levy interest penalties on withdrawals are advertised in such a way that the consumer can instantly understand what type of account it is.
While the revised Banking Code (‘Code of conduct for the advertising of interest bearing accounts’) with ensure that the conditions on withdrawal are stated in each account’s terms and conditions as well as in the proposed savings summary box, consumers may still not grasp the full extent of the penalties built into these accounts.
For this reason, Defaqto suggests that these accounts, which have proliferated in recent times, be labelled as ‘instant access penalty accounts’ or ‘easy access penalty accounts’.
This would be a step beyond the insertion of withdrawal penalty conditions in the proposed savings summary box and would enable consumers to register ‘at a glance’ the type of account being proffered.
David Black, Principal Consultant for Banking at Defaqto said: “Some providers of these accounts have started referring to them as “discipline” accounts on the basis that they’re designed to deter withdrawals in all but emergencies. On the positive side they do offer good value for depositors who know they will not need to access their money.
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Savers thinking of investing in regular savings accounts offering high rates of interest should carefully evaluate what they will actually earn and the conditions of the offer, says Defaqto. The majority of the highest paying regular savings accounts have conditions attached to their availability. Typically they are restricted to customers who either have a specific current account with the bank or to new customers prepared to open such an account. Depositing a certain amount of money into the current account each month may also be one of the conditions that applies before the high paying regular savings account can be opened.
David Black, Principal Consultant - Banking at Defaqto said: “Some of these offers have cracking headline rates but all of them are limited to a one year period so the actual amount of interest that can be earned looks surprisingly low when compared to the headline rate”
“Many people wrongly assume that if they invest £100 a month for a year at 10% that they’ll get gross interest of £120 (i.e. 10% on the entire £1,200). In reality only the initial monthly investment that will earn interest for a full year. The actual interest earned would only be £65 for a non-taxpayer, £52 for a basic rate taxpayer or £39 for a higher rate taxpayer”
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Nearly half of providers marketing SIPPs offer a defined link to fund platforms in their propositions to aid mutual fund trading, according to Defaqto’s Retirement Savings & Income Report 2007.
The figure has risen from 43% earlier in 2007 to 47% currently, with Defaqto expecting the rise to continue as the battle between structured and flexible SIPP propositions intensifies.
Matt Ward, Defaqto’s Principal Consultant for Pensions & Wealth Management and lead author of the report, says: “This movement provides a key example of where sections of the market are shifting away from full flexibility and towards more packaged propositions with tangible process improvements and cost efficiencies.”
“As the search continues for the holy grail of straight through processing and up to the minute online valuations through SIPPs continues, it is inevitable that more of these relationships between investment service providers will be formally established.”
Defaqto’s report also highlights the clamour for other providers of investment services and trading platforms to seek distribution opportunities via the buoyant pensions market.
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Consumers are being rewarded for disloyalty by credit card companies restricting best offers to new customers, says Defaqto’s in its latest report “Credit Cards in the UK”.
Despite the introduction of some ‘anniversary’ offers for existing customers, such as those offered by the Egg Card and the Post Office’s Two in One Credit Card, consumers are still able to get better deals by switching to a new card.
The average duration for an introductory 0% offer lasts 9.5 months for balance transfers and 5.6 months for purchases, whereas existing customer 0% anniversary offers are typically 5 or 6 months for balance transfers, so it is not difficult to see that consumers can be better off by applying for a new card.
David Black , Principal Consultant Banking, and author of the report, says: “There is a clear incentive for the creditworthy to review and change their credit card on a regular basis. The credit card industry is geared to routinely rewarding customer disloyalty for the creditworthy and there seems to be little evidence of this changing.”
Some market leading credit cards are offering 15 months 0% interest free credit: Virgin’s Credit Card for balance transfers and Halifax’s Purchase Card for purchases.
Cash back credit cards tell pretty much the same story, with the best ones invariably limited to an introductory period. Cash back rates of 6% (Shell MasterCard from Citi: on Shell fuel purchases for 3 months but paid as a discount on future fuel purchases), 5% (Amex Platinum: on spend up to £4,000 in the first three months; and Abbey Credit Card: on £1,000 of supermarket spend before 31 st January 2008), and 4% (Capital One Cash Back with World: for first three months) are some of the best available.
Black adds: “One area where credit card loyalty can be engendered is a rich reward scheme partnership with a national retailer or service provider whereby discounts are earned towards future high value purchases.”
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Defaqto has marked the first anniversary of its QuantRater fund rating service by launching an email messaging service to customers of its Aequos Engage product selection tool.
QuantRater ranks funds on a scale of one to five, with funds rated three and over showing above average efficiency in their use of risk and consistency of performance.
The quarterly service will send the 4,500 customers of Aequos Engage an updated listing of all funds with the top ratings of 4 and 5. At the same time, IFAs are being supplied with specialist training materials to show how to utilise QuantRater to maximum effect in the product search process.
In the investment product selection process within the bonds and pensions markets, the number of fund links available alongside products increases on an almost daily basis. Indeed the current average number of funds available alongside personal pension plans stands at 1,011. For those IFAs seeking to pick their own funds when creating a client’s investment portfolio the initial selection process and ongoing performance monitoring requires a great deal of resource, making time-saving tools such as Defaqto’s QuantRater particularly valuable.
Commenting on the situation, Fraser Donaldson, Principal Consultant - Investments at Defaqto said, “As investment houses jockey for position on bond and pension product fund panels, the quantitative ratings produced by Defaqto’s QuantRater will help them prove the capability of their funds.”
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Defaqto’s recently published ‘Retirement Savings & Income Report 2007 - A review of the individual retail pensions market in the UK’ (1) - shows that many consumers still trust themselves and their family and friends for advice on retirement planning.
Defaqto’s research (2) surveyed 1,000 consumers of which 27% stated that they trust their own judgement when it comes to advice on planning for their retirement, 23% trusted their friends and family and 12% trusted their spouse/partner.
In terms of professional advice, the research showed that overall 28% of consumers trust a financial adviser for retirement planning advice and 24% would trust their employers.
Lead author of the report Matt Ward, Defaqto’s Principal Consultant for Pensions and Wealth Management, stated that “The industry needs to find ways to build trust with the public and this will pay rich dividends in terms of both the amount of business generated as well as ensuring that people get the best advice in this vital area of their personal finances.”
Defaqto’s report also includes financial background information on key product providers 3 as well as data on the intermediaries’ preferred pension products, the evaluation of what is important to intermediaries in terms of product delivery and their assessment of the quality of service received by the principal providers.
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