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Leave group pensions out of the RDR
If all an adviser does all day is talk to businesses about setting up group pensions, why should he be required to train for giving individual advice? Yet this is another of the inapp-ropriate burdens that the FSA is placing on the group pension industry by including it within the remit of the retail distri-bution review.
I have a lot of sympathy for group pension advisers who tell me that they will have to qualify as a face-to-face IFA even though they never see individuals on a one-to-one basis. As with the ban on commission for group schemes, foisting an inappropriate exam regime on corporate IFAs is another layer of time and cost that will make it less profitable for firms to help in achieving Lord Turner’s goal of distributing more quality workplace pensions to more people.
The new exam requirements created a similar problem for the stockbroker community but they carved an opt-out not granted to group pension advisers. You could argue that this is the group pension comm-unity’s fault for not lobbying harder on the issue earlier on but then it was only revealed that group pensions are defin-itely to be in scope a matter of weeks ago and even that prop-osal is still out to consultation.
The level four qualifications have two components. All advisers will have to cover personal tax, investment risk and principles and financial services, regulation and ethics. Fair enough. If you are advising on corporate pensions, you need to know what they mean to the end-user. But the second component is far less suited to the corporate IFA, covering pensions, protection and general planning and also including an application planning paper that could be on subjects as far from the corporate marketplace as estate planning.
Or there is an alternative strand created to accommodate the stockbroking community that covers securities and derivatives. None of this is any use to the corporate adviser or the employers and employees that he or she serves and must be particularly galling to those dealing in group pensions, given that these new exams are only being introduced because of the failings of some individual IFAs.
One corporate adviser looking to make the best out of a bad job is Michael Whitfield, chief executive of Thomsons Online Benefits. Thomsons did just two pieces of face-to-face advice last year, yet the firm’s consultants have got to learn all about estate planning. Whitfield wants a syllabus that will teach staff how to be a good corporate adviser and proposes to create his own if no one else will do it. With the rest of the industry so far down the line, he may have a struggle getting the regulator to accept it but I wish him every success.
I can understand the argu-ment that in other professions you have to learn things you will never use. Solicitors, for example, spend six months covering four different areas in their two years as articled clerks, some of which will later prove irrelevant. But it is more galling for corporate advisers who do not understand why they are within the RDR in the first place.
In the same way that I have yet to see evidence of consumer detriment that justifies a ban on group pension commission, I have not come across research showing failings in professional standards in group pensions.
The whole problem, of course, flows from the fact that, at law, GPPs and group stakeholders are groups of personal pensions. This fudge has caused problems for workplace pensions and is contributing to the decline in workplace pensions that the Government is spending so much money trying to sort out.
What is needed is some creative thinking at the FSA. Saying that group pensions should be out of the scope of the RDR after all would be a start and if more IFAs move into the group pension sector as a result, then everyone wins.
John Greenwood is editor of Corporate Adviser
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Readers' comments (5)
Anonymous | 5 Feb 2010 9:13 am
Advice to an Employer on the merits of a GPP or Stakeholder, provider selection and even default fund selection is not regulated work as the employer will not be the investor. Therefore it falls outside the RDR and the qualification requirements. The FSA have stated that non-advised work falls outside the RDR. However if you want to give advice to the employees about joining the scheme, fund selection, etc, it is regulated and falls inside the RDR and the qualification requirement. Thats my interpretation... discuss...!!
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Man in Black | 5 Feb 2010 1:14 pm
Another lightweight article from Mr Greenwood again banging the "World owes a living to the GPP salesman" drum.
It is frankly a laughable argument you have here that its "fair enough" for the GPP salesmen to have to know the core stuff about regulation & ethics, investment and general taxation, but shouldn't have to sit a paper covering pensions.
Anonymous @9.13 makes a far more sensible & possibly correct point.
If you're familiar with Article 53, Regulated Activities Order 2001 SI 544, you'll know that "investment advice" is actually "given to the person in his capacity as an investor or potential investor"
Whilst this obviously covers proper IFAs, it is difficult to see what relevance it has to GPP salesmen who don't really advise individual clients. They'd only have to get qualified if they want to be actual IFAs.
Afterall, RDR makes it clear that GPP salesmen are NOT IFAs and cannot claim to be (even if they did get qualified). Check out [Draft COBS 6.2A.4 G(2)]: "A firm whose relevant market is relatively narrow should not hold itself out as acting independently in a broader sense."
RDR is a huge waste of time and money. The Exam burden on ordinary IFAs actually advising clients on day-to-day stuff is potentially huge and certainly unjustified.
But all this rot you come out with defending direct-offer based GPP salesmen is terrible: employers will have to operate pension contributory pension arrangements and hopefully will be driven into the arms of proper IFAs if they want something better than personal accounts.
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john | 5 Feb 2010 4:30 pm
The Man in Black seems to be away with the fairies. So a company has a pension scheme wihich it contributes 10% to provided the individual pays 5% to. Are you really saying that we should have so called "proper IFAs" involved. Most "proper IFAs" i have come across fail miserably in the corporate market because they have one way of operating. I don't see this changing but do see a load of qualifications which won't be necessary.
if there were qualifications on company tax, corporate governance, project management, member engagement without advice etc etc i think people would applaud.
My experience with literally 1000's of schemes over 25 years is that john speaks a load of sense
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Harry Katz | 6 Feb 2010 12:31 pm
I’m not sure of Mr Greenwood’s scope of experience. But to say that corporate pensions advisers should be exempt from the RDR is not only wrong; it is so off beam as to be on another planet.
In my experience the most corrupt section of IFA advice centeres precisely around this,
I have come across numerous examples where the deal has been struck between the adviser and the FD or MD or CEO and the quid pro quo is a hefty kick back. Whether the scheme is any good, what the fund performance is like, or the level of charges is all irrelevant to the deal, provided the individual signing the documents is incentivised sufficiently.
Please understand I’m not saying this happens in every case, but in over 20 years I have come across enough examples to know it is not isolated. You only have to consider some of the awful schemes from dreadful companies (and I’m sure you can identify some of which no longer even accept new business) – why would anyone have bought such rubbish?
Naturally in my sphere I am mainly talking of firms who employ up to 100. But even in the larger schemes I’m sure other IFAs will bear out that the individual members get scant service. In my own case a have several clients of large and small schemes, ranging from a large multi-national to a firm of 25 whose employees don’t know the details, don’t know what funds they should choose, don’t understand the valuations – which are invariably presented months out of date(and they get charged if they want more than one per year). Administration and client contact is generally very poor.
They come to me for an analysis – and pay for it. When you bear in mind it is their pension, they are (in the majority of cases) treated in the most appalling cavalier manner.
Remember that there is the most basic and vital conflict of interest. Basically the client is the firm – not the member.
Personally I have always felt that group pensions were plans for the lowest common denominator and have steadfastly avoided them. I do have corporate clients, but each employee has their own pension. Not all have pensions with the same provider as often this is not ‘best advice’. Sure it is a lot more work, but instead of one client I have 10 or 20. Moreover there is no conflict of interest – so when advising the client I can work towards his/her best interest – which might not always coincide with that of the firm.
Alternatively when employed by the firm I consider it my job to work in their best interest – in which case I show them how best to save money and avoid the administrative and regulatory burden of running a scheme at all.
Yes Mr Greenwood – you couldn’t be more wrong and it is high time that this cesspit was cleaned up.
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Man in Black | 8 Feb 2010 1:06 pm
John @ 4.30pm, 05/02. Away with the fairies? Ha Ha! Go back and read the article.
Greenwood asked a question: "If all an adviser does all day is talk to businesses about setting up group pensions, why should he be required to train for giving individual advice?"
The answer is that he doesn't. He doesn't even have to be individually authorised to flog GPPs to employers. Or give presentations to members, issue packs etc (Though obviously his firm would need authorisation)
What on earth has the usual "60 years in the industry" line got to do with this?? How does that affect the interpretation of a Statutory Instrument or the FSA handbook?
As for your line about if only there were qualifications for various aspects of the corporate market, you really sum up your "experience" here. APMI has been around for years - and has been the qualification of choice for proper pensions consultants...But who needs APMI when all you're doing flogging GPPs is watching your Rep from Scot Eq or Scot Life doing the hard bits for you?
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