View more on these topics

A suitable case for decision trees

A veritable forest full of articles, in fact. You can consider that consumers are at greater

risk because, if they follow a decision tree to the wrong conclusion, they have no rec-

ourse in law.

But we are going to have them and, positioned prop-

erly, they could help consumers understand what their options are and encourage them to make provision for their retirement.

So, in considering the FSA&#39s consultation paper CP61, I want to concentrate instead on some of the proposals which appear to break new ground for the regulator, why they might have been tempted in the direction they have gone and whether it is reasonable.

A key section of the consultation paper deals with

the comparison of personal pensions and stakeholder pensions and proposes that an adviser selling a personal pension must document why it is more suitable than a stakeholder pension.

There are two obvious questions. Why more suitable?

Why is it not sufficient for a regulator that the products are equally suitable? Second, are we entering another “material disadvantage” type discussion where advisers have to sec-

ond guess the FSA&#39s views on

establishing equivalence or

better, with the risks which

that entails?

I would argue that personal pensions can deliver a product to consumers which can meet a reasonable test for suitability. For example, how does a personal pension with only one charge, namely an annual management charge of 1 per cent, for its main funds compare with a 1 per cent charged stakeholder pension?

It is at worst equally suitable. If some funds are available at more than 1 per cent, that does not change its suitability in my view, even if the flexibility of investment choice is not a key issue for the consumer at the point of sale. The scope for wider investment may be appreciated down the line and it is difficult to see

what the downside is in the meantime. So would that pass an equally suitable but fail a more suitable test – and, if it would fail, why should it?

The second reason usually used for a personal pension is the ability to include a charge for advice. If the annual management charge goes above

1 per cent to deliver that charge, does that affect suitability? If the AMC stays at

1 per cent but there is an up front fee taken from the product, does that affect suitability? Paying advice costs through the product is tax-efficient and on the face of it should be the preferred solution for many consumers.

Care is needed in any comparison with stakeholder since advisers must not make their comparison with a standard stakeholder if the consumer had access to a better than

standard stakeholder.

What the FSA has done is understandable, though. It clearly wants to ensure, as far as possible, that consumers cannot be sold expensive personal pensions but more guidance on how they see investment choice and advice costs would be valuable if consumers are not to lose out through

the perceived greater risk

of selling a more flexible personal pension.

Their concern to ensure that personal pensions are not missold post-April 6, 2001 – or perhaps earlier in the spirit of the proposed changes – extends to group personal pensions. The FSA has looked

in particular at the increasingly popular route for selling GPPs by direct offer.

Group presentations to employees are followed by packs given to each employee setting out the terms of the scheme, including the employer contribution, and inviting them to join.

The proposals here break new ground. Advisers will need to be able to demonstrate that the GPP is more suitable for the majority of members than a stakeholder scheme. One

of the key aspects of a direct offer sale is that it is done without client advice being given and hence suitability is not

tested. So now we have a conundrum. How can you pass a test based on a feature which is not being explored?

What if the employer decides to contribute to a GPP but not to a stakeholder – does that justify greater suitability for the GPP? This is not explicitly covered but it is indicated that just satisfying the DSS exemption provisions would be insufficient to justify greater suitability.

So, a GPP which satisfies RU64 and which has an employer contribution of 3 per cent or more for all its members

still has some work to do in demonstrating that it represents the right choice for its potential members.

In that context, more guidance is certainly needed from the FSA on what issues it sees as key for establishing greater – or preferably equivalent – suitability and why.

The consultation paper is silent on occupational money- purchase schemes. There

is, of course, the general requirement that the adviser should not sell a non-regulated product without considering the options around a regulated product. But, given the emphasis on GPP comparisons, more explicit guidance around Cimps would seem reasonable, presumably on the basis of creating an even-handed approach to all money-purchase provision.

The world of 2001 is still being formed. Quality GPPs represent a positive contribution to UK pension provision. I hope the final regulatory regime will not risk depriving future consumers of the benefits which can be delivered uniquely through that product


Ifa Roadshows

Fund managers fear the petrol price protests sweeping the country will bring their IFA roadshows to a standstill.As road blockades increase and petrol stations run out of fuel, pressure is mounting on fund managers to decide whether they should cancel the events over concerns that IFAs will not be able to make the journey.M&G, Threadneedle […]

Independent View

Are IFAs paid too much commission? This might seem a contentious question at the best of times but there does seem to be a focus on the subject (yet again).A recent Radio 4 consumer programme took an ex-adviser on a series of interviews to prove the contention that “commission is much higher today than it […]

Who shoulders the IHT burden?

To be able to arrange life insurance to pay off an inheritance tax liability, you need to know who is primarily liable to pay the tax.Unless the policy is capable of paying out to the person liable, it is not fulfilling its function.In addition, you will need to know how much of a gift is […]

Changes at Chase Fleming

Chase Fleming Asset Management chief investment officer Tony Robinson (above left) is leaving and is to be replaced by Martin Porter (right).Robinson is the fifth departure this week following the resignations of two senior sales directors and two fund managers. The resignations come after staff got payouts of up to seven figures, following its takeover […]

Qatar cover image - thumbnail

White paper — Qatar International Insights

Jelf Employee Benefits highlights new legislation, key requirements and policy considerations when structuring international private medical insurance (IPMI) for expatriate employees in Qatar. This edition will be of particular interest to global human resource directors, compensation and benefits specialists and mobility managers who have employee populations in Qatar.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm