Aifa’s argument was that the RDR proposals were designed for the individual retail financial advice sector and not for the corporate wholesale advice market.
It argues that the FSA has given too little time for an industrywide consultation on the issue and there could be unintended consequences for advice if adviser-charging is introduced to corporate pensions.
Aifa director of policy Andrew Strange says: “The attempt to look at the market in isolation from other aspects of the RDR proposals, such as factoring, is fraught with potential problems.
“There is a danger that an unintended outcome could be reduced access to regulated advice. The proposals could destabilise a well organised, consumer-driven market. With the shift from defined-benefit to defined-contribution pension schemes, employees are in ever greater need of advice on pension planning.
“The FSA must ensure its proposals do not make it even harder to access professional financial advice. A significant consequence of these proposals could be firms promoting direct-offer pensions without advice to consumers. This would be a backward step and would reduce consumer access to advice.”
Occupational pension schemes are not regulated by the FSA and will not fall under the RDR. Intermediaries and employee benefits consultants would still be able to receive commission-based payments when advising on occupational schemes but not on group personal pensions or group stakeholder products.
Aegon head of pensions development Rachel Vahey says this could create a disparity between occupational pensions and GPPs.
She says: “The RDR was designed for the individual world, not the corporate one. We need to figure out how it would work in this market and how to get advice to these people, because the employer will probably be resistant to paying fees. Adviser-charging will not necessarily work in a corporate world.”
Vahey says she is glad the FSA has asked the industry for feedback on how adviser-charging would work in the corporate market but adds that the timescale for consultation was short.
Aifa also has concerns that the proposals will put Financial Services and Markets Act-authorised advisers and non-FSMA-authorised advisers on unequal terms.
Strange says: “Advice to employers, even when identifying a specific GPP provider, does not generally amount to a personal recommendation and is beyond the reach of the FSMA.
“Our research disputes the FSA’s claim that the ‘predominant market model is for GPPs to be promoted to individual employees without personal advice’. When questioned, 93 per cent of IFAs offered advice to an employer, which is generally out of scope, but 71 per cent also offered personal advice to employees. This suggests that the vast majority of IFA GPP business is conducted with individual regulated advice.
“The FSA proposals will therefore create a significant imbalance between FSMA and non-FSMA sectors. This could drive advisers to switch sectors, reducing access to individual personal advice. This would run counter to FSA proposals and the wider interests of UK public policy.”
If the proposals go through as they are, Standard Life head of pensions policy John Lawson predicts some advisers may be tempted to offer basic advice on stakeholder products as an alternative to full advice on GPPs in a bid to avoid adviser-charging.
He says: “The way the RDR proposals are constructed is far from ideal for GPPs. The Government, FSA and The Pensions Regulator need to sit down together and say this is not what we intended.”
He adds that the reason the corporate pension market was included at the last minute was because the FSA was worried that advisers would write individual business as group schemes in order to avoid charging.
Lawson says this could be prevented by defining a qualifying group scheme as one where members are connected to just one employer.
If the rules stay as they are, he believes advisers will simply end up recommending employers to take up occupational schemes and continue charging commission.
He says: “GPPs should be outside the remit of the RDR. The natural place for them to be regulated would be with The Pensions Regulator rather than the FSA. GPPs are wholesale, not retail.”
However, Royal London head of communications Alasdair Buchanan believes that Aifa’s concerns about adviser-charging on corporate pensions restricting access to advice are unfounded.
He says: “We have been operating factory gate pricing for three or four years now and 70 per cent of our new GPPs in the DC market are priced in this way. IFAs are perfectly capable of oper- ating on such a basis.
“The suggestion that access to advice would be decimated is certainly not the case.”
In fact, Buchanan thinks the biggest danger is leaving corporate pensions out of the RDR because of the inconsistency between the treatment of individual personal pensions and GPPs or group stakeholder pensions.
He says: “What Callum McCarthy said in Gleaneagles three years ago is every bit as relevant to the GPP market. The danger would be in allowing that inconsistency of approach to continue, so it is important they are pulled into the scope of the RDR.”
Buchanan considers that the proposals should also apply to basic advice to avoid Lawson’s prediction that advisers may switch to giving basic advice on stakeholders instead of full advice on GPPs.
He says: “Basic advice should not be an easy bolthole for the continuation of all the problems of the commission-based market. There should not be an option for basic advice to operate in that way.”
Buchanan also questions Aifa’s researchand thinks it is unlikely that 71 per cent of employees receive personal advice on GPPs although he says Aifa may have a different definition of personal advice to his.