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Advisers and providers hit out at consultancy charging rules

by William Robins on Nov 22, 2012 at 10:05

Advisers and providers hit out at consultancy charging rules

Since the Financial Services Authority (FSA) declared that corporate advice charges must not reduce pension contributions under the auto-enrolment statutory minimum of 8% of qualifying earnings, providers have fought tooth and nail against it.

Consultancy charging takes money from contributions before they have been paid into a pension pot, directing them to the corporate adviser who helped to set up and administer the scheme.

Opposition to FSA principle

The FSA has said consultancy charges may reduce contributions but only down to a minimum of 8%. All the signs are that it will stick to this, despite lobbying from the Association of British Insurers, whose members must now work out how to facilitate these charges without breaking the principle.

‘We don’t understand the FSA’s position,’ says Legal & General pensions strategy director Adrian Boulding.

‘We are still working with the FSA to try to get it to explain what it means. Is it saying we have to have two different pots, one for the statutory minimum and another pot for consultancy charges? We have just got over doing this with contracted out pensions (they must have a protected rights pot) and that doubled our workload for the last 24 years.’

Resistance to consultancy charges

Richard Grover, corporate pensions and protection adviser at Wingate Benefit Solutions, says his firm will only take a consultancy charge as a last resort.

‘We find that having a more explicit, more transparent system works better for everyone: a pounds-and-pence figure instead of a percentage charge,’ he says. ‘Typically, the employer wants consultancy charging to offset the cost of advice because it cannot afford to pay for advice outright.’

Why not draw a line? If employers cannot afford the fee, they cannot afford advice.

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7 comments so far. Why not have your say?

David Cathcart

Nov 22, 2012 at 10:30

Why anyone would want adviser charging on corporate work when a fee for professional services can be completely offset as a business expense is beyond me.

The only reason the ABI is pushing for this is to retain control of the income stream. When will they ever conceed that the power is now with the adviser not the insurer.

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Michael Maguire

Nov 22, 2012 at 10:33

"The FSA has said consultancy charges may reduce contributions but only down to a minimum of 8%"

What about the NEST contribution charge of 1.8%? This is taken from the gross 8% NEST contributions and therefore reduces the contributions below the minimum 8% to 7.856%.

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Stewart Tomlinson

Nov 22, 2012 at 10:50

David; I agree completely. The opportunity of AE is in providing the employers with advice so that they can comply with tPR regulations. Providers are petrified of losing control of distribution now that commission cannot be paid on post RDR new group schemes.

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Julian Stevens

Nov 22, 2012 at 10:55

To Michael Maguire ~ As David Kenmir was wont to say: "That's different".

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Nov 22, 2012 at 12:34

David Cathcart, I agree. However, there is yet again a state of do as we say not what we do. The hypocrisy being that NEST is taking charges and increased these charges to cover their set up costs.So why should the employer have to foot the cost, when the Regulator, Government and NEST have made sure they will not.

For me the issue is that we are continually being told that we must not do this that and the other, whilst the Regulator and Government put themselves above their own laws. This then creates an unfair advantage, which if existed in the free market environment they would seek to close down.

It is well over due that this practice was stopped and the regulator should be brought to task by the TSC. Not that they will be able to do anything as the regulator is been given powers which makes them immune to any truthful investigation.

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Nov 22, 2012 at 21:18

As always there are two types of employers who care about employees and who don't and they will try only to comply with the rules. This Nest or not Nest will make a better difference ans help jobseekers to make a better choice when looking for jobs.

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lee rawding

Nov 23, 2012 at 15:57

Given the huge number of micro, small and medium enterprises that will have a decision to make over the next few years I think choice of method of payment for services rendered is essential.

For some employers who have an ideological objection to the forthcoming changes but who are pragmatic enough to seek/take advice, the consultancy charging model may well go down like the proverbial bucket of sick.

Whilst I agree with the main thrust of David's point we should not let perceived provider interest blind us to the fact that many more employers will be trawled in by the AE net and, putting adviser ideological dogma to one side, choice of method of payment is surely a good thing?

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