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Categories:Pensions

FSA slams £500,000 GPP commission case

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A £500,000 commission payment on a 1,000 member GPP has helped confirm the FSA that it is right to abolish commission on GPPs.

Defending the abolition of commission, the FSA has rejected arguments that consultancy charging will lead smaller employers to level down to Nest.
In policy statement 10/10, responding to the issue, the FSA said it was not swayed by the arguments put by some advisers that employers appreciate not having to pay for the services they receive.
The FSA also cited comments attributed to Towry Law saying that commission on a sample scheme might be £55,000,but the actual cost of advice and
services to the employer on a fee basis might be around £10,000 as evidence that supports the ban.
The FSA says it has given two formal opportunities to the pensions industry to provide detailed estimates of the cost of advice through CP09/18 and CP09/31, but had not been provided with any substantiated cost figures concerning the true cost of advice services on GPPs to employers, as opposed to the remuneration secured through commission. Respondents had however quoted commission rates in the range of 10 to 35 per cent of the first year’s GPP contributions.
The FSA policy statement says: “Two respondents to CP09/31 mentioned an example, hopefully extreme, of a 1,000-member GPP generating their first year’s commission of £500,000, despite the adviser only providing limited services to the employer and no advice to individual employees.

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Readers' comments (9)

  • the FSA pobaly need to look more closely at the cost per individual when this is broken down this equates to £500 per member and if advice is beig given on an individual basis not to mention all the administration in running a group scheme I would feel that the IFA has priced the case about right.

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  • The FSA, as usual, don't have a clue about the cost of running a business, much of which costs are those imposed by its ridiculous extreme over regulation of the business.
    Scrapping the occupational pension scheme of these parasites and making them seek out advice would help in bringing them down to earth.

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  • The FSA, as usual, don't have a clue about the cost of running a business, much of which costs are those imposed by its ridiculous extreme over regulation of the business.
    Scrapping the occupational pension scheme of these parasites and making them seek out advice would help in bringing them down to earth.

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  • The commission for that case seems like very small beans in comparison to the over inflated salary of the over inflated hector sants !! over £700,000 for assisting to bring the country to its knees yes please !! oh and a job at the bank of England (not bad while my business crashes under me) THANKS HECTOR !! your a saint.

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  • Having intially read the headline of this article I was surprised to read that £500,000 was unacceptable for a 1000 life scheme after all this represents £500 per head and may have been broked on the basis that it payed for services over 5 years or more. However, having read further into the article and learned that it was not for active advice and one to one memeber services and therefore I presume no service level agreements where discussed the FSA are quite right to be astounded by this figure.

    It is a shame that the actions of a few (or perhaps many) cause so many problems to the high quaity employee benefit firms that work hard to improve the industry.

    Having said that how on earth did the employer allow it??

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  • Hell of a commission payment, bet the champers was cracked open when this case was landed!

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  • Yes, £½m commission (on indemnity?) is an astoundingly large sum, even more so with no 1:1 advice provided to the scheme members.

    If the sponsoring employer doesn't wish to pay additional fees, then CAR, with fund-based trail for ongoing servicing and administration, would seem to be considerably more appropriate.

    Then again, what about the FSA having spent £16M on outside consultancy commissions, £22m on bonuses, £638,500 on corporate hospitality, tens of thousands of pounds on assorted leaving bashes and staff jollies, unknown sums on accommodation expenses (with prescribed limits routinely breached), more still on expensive works of art, a £612,000 golden parachute for Clive Briault and all the rest of it? Is this not a classic case of pot calling kettle black? Of course it is ~ more of the same old do as we say, not as we do.

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  • There are two reasons the employer probably allowed it:

    1) They didn't realise it affected the scheme much
    2) They were getting a kick back themselves from the IFA
    3) The IFA was good friends with the directors and were their IFA so it was mutual situation.

    Of course these things never happen do they?

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  • Can only agree with anonymous above. for the IFA firm to earn £500K for a ltd advice scheme, the only word I can think (without any knowledge of the actual scheme) of is BUNG. So the employer probably got a nice tickle out of it which helped oil the wheels.

    Whats the betting that the scheme will be turned over again before RDR, just as soon as the 12 month clawback period is completed.

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