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Providers unite to set out consultancy charging framework

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Five providers have grouped together to agree common processes for the implementation of consultancy adviser charging in a bid to avoid chaos when the RDR is implemented next year.

Aegon, Friends Life, Legal & General, Prudential, and Scottish Life have published a set of common principles and processes for the operation of consultancy charging with the aim of improving the efficiency of RDR implementation.

The principles and processes are contained in a report, facilitated through Deloitte, and with adviser input from Sesame Bankhall, called A Shared Approach To Adviser And Consultancy Charging.

The paper sets out the various potential remuneration options that will exist post-RDR, and addresses opt-outs, VAT, one-off charges and changes to advisers. But it does not address issues such as decency levels or the level of charges that will actually be taken.

Options for regular pension contributions include initial consultancy charges expressed as a fixed amount or a percentage, over a fixed period between one and 24 months.

Ongoing charges, whether a fixed amount or percentage of fund value should also be facilitated, with a similar approach adopted for ad hoc consultancy charges, the paper proposes.

It also suggests that on cancellation within a cooling-off period, refunds to the client will be allowed either net or gross of consultancy charge, although a scheme used for auto-enrolment must make a full return of contributions where there is an opt-out within the three months after joining.

The paper also contains principles for best practice in relation to changes in the rate of VAT, the VAT status of a service provided, and situations where an adviser’s VAT status changes because they go above or drop below a VAT threshold.

Steven Cameron, Head of Regulatory Strategy, at Aegon says:“We feared there could be chaos in early 2013 if advisers were to agree certain charging structures with clients, only to find the provider they then recommend wasn’t offering that particular option. The opportunity to contribute to a cross-provider initiative to identify where it would be to the benefit of advisers, clients and providers to develop some common processes was something we couldn’t pass up.”

“We also saw real merit in helping move forward with some common terminology and producing one of the first concrete deliverables to support advisers in their preparations for RDR.”

Alasdair Buchanan, head of communications at Scottish Life says:“This will help to simplify processes and improve understanding of how things will work in practice and it will introduce a common industry way of working and thinking for Consultancy Charging.”

Gavin Norwood, partner at Deloitte, says: “The Retail Distribution Review will result in a huge change in the way financial advisers are paid for their advice. The changes will come into effect by the end of 2012 and although many of the rules and guidance are in place, the industry needs to develop a common view of how adviser charging and consultancy charging will work in practice.”

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Readers' comments (4)

  • I believe these providers have missed the entire point of RDR, namely that it will for advisers to determine how much they get paid and on what basis, and will no longer be in their giving...

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  • Just read the report. Unimaginably dull. The chances of any client, corporate or individual, understanding and engaging with any of this are close to zero. Doubt whether many advisory firms will understand it either.

    What I would however bet is that GPPs will be written with massive 'agreed' deductions, because nobody can understand any of the charging structures, and there are no decency limits. Lack of decency limits in this industry always lead to indecent remuneration being taken. Individual AC charges will be along the lines of 'we charge 3% plus half a percent trail Mr Client' so again, what has changed? RDR looks like a very expensive consultancy assignment for firms like Deloitte who charge huge hourly rates. Wonder if they have any jobs going?

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  • Noticeable by their absense are Standard, Aviva and Scottish Widows! True Corporate Advisors have already established their remuneration mechanisms which makes me wonder who the target audience for this wonderful piece of collaberative work really are? Hopefully these principles will also be robust enough to deal with auto-enrolment, and factory gate pricing for different distribution models? Mr. Durham also makes a very good point, of equal inverse proportion to huw's very bad one!

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  • I've had a quick read through and I think Trevor Durham appears to have slightly missed the point of this publication. He is absolutely right to say that product providers will no longer have any say in the level of remuneration an adviser firm receives for the services it provides post RDR. As an adviser firm, we will need to decide whether it is in a customer's interests to facilitate an adviser charge via a product. For example, why use withdrawals from an ISA fund if the client has other cash to pay the Adviser charge. On the other hand, there may be tax advantages to facilitate the adviser charge through a pensions wrapper for pensions related advice.

    Assuming we decide it is in the customer's interests, my reading of the document is that if a provider is to facilitate this payment from one of their products, that provider must be set up to do this properly or IFAs won't get paid. This could cause a whole mess of trouble. The purpose of the document appears to be to spell out to intermediary firms which methods of facilitation may be available at the end of the year.

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