Personally, I really hope that the RDR helps to do away with commission in the group pension market altogether. In the vast majority of cases, advisers have no contact with the members of the scheme that they have sold to the company.
Yet it’s worth remembering that in the case of group personal pension schemes, the adviser’s clients are really the scheme members, not the employer. But these people are rarely given even the most basic advice about how much to save into their pension or where to invest it.
My own company’s GPP is the perfect example. Jardine Lloyd Thompson gets paid a nice juicy commission based on the amount I pay into my scheme, even though I’ve never had any more contact with them than a couple of letters informing me that they are the advisers to my company pension scheme.
Fortunately, I know a little bit about asset allocation and how to diversify my pension but the majority of people in my office have no clue.
Ironically, they often approach me to ask which funds they should be putting their money into, which leaves me in an awkward posi- tion. I give them my opinions but I’m very care- ful to warn them that this does not constitute advice, and I have to stress that the decision must be theirs. Perhaps JLT should be providing me with a cut?
Many advisers clearly don’t lose any sleep over receiving payment for a service they don’t provide. The cheques are generally so much larger than taking a simple fee – it’s a no-brainer.
And it’s not just the advisers who are at fault. Employers who are keen to keep their own costs to a minimum must shoulder some of the blame here, too. Given the chance of passing on the bill for advice to their staff, most HR or finance directors will jump at the chance without bothering to ask what the adviser plans to offer their employees in the way of advice.
In many cases, companies don’t want their adviser to provide any encouragement for their staff to join the company scheme – as it will only cost them more.
For example, although my employer makes a half-decent contribution into my pension – matching me up to 6 per cent of my salary – it only offers this because there is such apathy in the office. Even when the company’s contribution was not dependent on the employee contributing anything, most people still failed to sign up.
Companies need to remember why they are offering pensions in the first place – as an incentive for employees – and should be willing to pay a few thousand pounds in a one-off fee to an adviser to ensure that they get impartial and good value advice.
Equally, those advisers who do get paid by commission should be insisting that they provide pension seminars to employees – at the very least. Ideally, they should also make themselves available for one on one advice, over the phone or by email, if not face to face.
I believe the RDR will eventually broaden out to address all these issues. Savvy advisers will start to adjust now.
James Daley is personal finance editor of The Independent