FSA confirms GPP commission ban in final rules
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The FSA has confirmed commission on all new group personal pensions will be banned under the retail distribution review from 2013 and revealed consultancy charging will be allowed, in its final rules on corporate pensions.
In its policy statement Delivering the Retail Distribution Review - Corporate Pensions: Feedback to CP09/31 and final rules, the FSA made no major changes from those proposed in the consultation paper.
Although the regulator confirmed that commission will be allowed to continue on existing GPP business and outlined that consultancy charging will be allowed to be taken from GPP contributions and members accounts on a pound for pound basis.
The FSA is going ahead with the extension of its ban on commission so product providers do not pay commission on investment products linked to occupational pension schemes sold as GPP alternatives.
It also confirmed the ban on factoring proposed for individual investments including personal pensions should extend to adviser remuneration under GPPs and outlined that advisers will be required to fully disclose to employers the potential remuneration, under the final rules.
The FSA says it plans to set up an industry-wide working group to discuss the allocation of consultancy charges across different types of GPP members and warns providers that it will be monitoring the GPP market until 2013 to check no one is taking advantage of its decision to allow commission on existing schemes.
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Readers' comments (17)
paolo standerwick | 25 Jun 2010 11:11 am
Well that'll ensure lots of sale then won't it?
Just what we need when we don't having a savings culture anymore!
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Anonymous | 25 Jun 2010 11:49 am
Is this not a Restraint of Trade ?
Let's just leave the good/bad commision versus fees question for a moment and ask when did the FSA decide they were Judge, Jury, God etc for everything in the financial advice market ?
If the FSA are a "Regulator" should they not stick to regulating the free market that already exists where trademan and customer are free to make their own choice about how they go about THEIR business ?
Why doesn't the FSA stick to regulating rather than trying to manipulate the market place ?
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Paul Greek | 25 Jun 2010 12:40 pm
Why is the FSA so much against Financial Advisers earning commission? Many IFAs and clients are very happy with this arrangement, so what purpose does the FSA fullfill in banning it? The FSA is very happy to increase our fees to pay themselves outrageous bonuses, but they seem not to want us to earn a living by the traditional methods.
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Chris F | 25 Jun 2010 12:57 pm
It's a pity the FSA haven't regulated anything important and hence presided over the collapse of financial markets.
Apropos nothing, I was speaking to a friend who is a lending manager at a bank.
His has a target for tied financial adviser sales to his clients. He gave two examples where the tied bank adviser recommended a contract nearly 100% more expensive than the same bought directly from the same company (i.e. £170 via the bank with Aviva, £90 direct with Aviva).
Should the FSA be looking at this instead perhaps?
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David | 25 Jun 2010 1:11 pm
My main business is from two fairly large GPP Schemes. I offer a full advisory service, meeting with all new members of staff, offering one to one advice about their membership of the scheme and responding to their questions about other financial matters. I administer both schemes on behalf of the employers - all they have to do is pay the money. On one scheme I even reconcile the payment on line, which is then collected by DDi. And all of this out of commission earnings based on a 1% AMC.
My average remuneration on one scheme is considerably less than my normal hourly rate and, on the other scheme, I probably break even with my normal hourly rate (£100 an hour for advice/£50 an hour for admin).
Sitting in its ivory tower in Canary Wharf, I doubt that the FSA has a clue about what many IFAs actually do to earn their measly share of a 1% AMC. And now they want me to justify every penny I earn to the employer.
To say that I resent this is an understatement.
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Anonymous | 25 Jun 2010 1:53 pm
Perhaps the FSA was forced to regulate in this manner, to stop insurance companies putting themselves, employee's, and shareholders at risk - due to their self-destructive commission price wars to win business.
The FSA is arguably also trying to protect consumers from churning, a biproduct of price wars and Initial AMC commission models...not to mention cross-subsidy.
Commission is still available, just a different 'type' of commission, one that is clear and transparent, which requires justification in relation to the upfront and annual amount of work being done for each client.
David...you forgot to mention how you get paid for servicing 'existing' members, reviewing and re-profiling them. I am guessing your scheme is not profitable enough. Would scope via Adviser Charging not be preferable to you, so YOU can be in charge of how and how much you get paid, so YOU can offer the services that you agree with the employer, and know that you will be profitable? If a 1% AMC is not profitable to the providers, how can you want more, and then have issues when the provider goes bust?
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Joe | 25 Jun 2010 2:52 pm
This is really a non story. The Life Offices realised a while ago that commission salesmen were busy churning these polices every few years, making the schemes unprofitable.....and so most of the GPP new schemes offered nowadays are nil commission.
Actually the 'market' talking...... but hell, why not do some FSA bashing?
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Anonymous | 25 Jun 2010 3:13 pm
Good move FSA. Add that to Stakeholder and the regular premium pension industry is at an end.
Is the industry so emasculated by these brainless regulators that they sit back and witness their own decline?
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David | 25 Jun 2010 3:44 pm
@Anonymous (1:53). I did not *forget* to mention how I get paid for servicing. But for your information, on one scheme it's by way of renewal and on the other, which is on an annual commission basis, it's factored in by a 10% tolerance on scheme premiums from one year to the next.
On the basis of this, I am happy to provide a service to the employers and to the scheme members.
My point is that my remuneration by way of commission is modest and fair to the members. And I am satisfied that it provides my bread and butter. I don't want more from the providers.
We now learn that for new GPPS business, we can effectively front load the client between 10% and 35% of the first two years premiums and that this is acceptable to the FSA. How on earth is that TCF when I am happy and my clinets are happy with commission based on a 1% AMC with no up front cost to the member?
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CJ | 25 Jun 2010 4:08 pm
How can advisers claim to be IFA's when they give GPP's to who ever pays the highest commission, regardless of fund performance or service? That is clearly wrong, immoral and needed addressing.
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