The consultancy charging working group has attempted to pin down the issues facing any adviser wanting to promote a non-fee route come 2013. But fundamental questions about how the system might work remain unanswered.
The group, overseen by the Society of Pension Consultants and facilitated by the FSA, identified four key principles that should inform consultancy charging structures – simplicity, transparency, value and flexibility/adaptability.
It has produced a set of guidelines firms can use to make consultancy charging work, even if it remains silent on how much can be taken from whom and how. It is for the industry must decide what decency levels on deductions from employees’ contributions meet providers’ treating customers fairly obligations and how best to take it out of contributions while balancing the different needs of employees in the same scheme.
Virtually any practicable system is OK provided it meets the four principles. Initial charges can be taken immediately, in the shortest possible time or over a fixed period, with up to five years considered acceptable, although how many advisers are able to wait that long to get paid remains to be seen.
Charges can be a fixed fee per member or a fixed or tiered percentage of employer and/ or employee contributions or a percentage of funds under management.
One of the problems with group pension schemes is that whatever way you levy charges, there are winners and losers. As is the case in the argument over active member discounts, you can argue that mono-charge products actually see leavers paying less than those who stay with a company for decades.
There is also the apparent inequity that monocharge commission or consultancy charging structures can see employees paying for a service given to their employer.
The consultancy charging working group’s paper goes no further than identifying these conflicting interests and suggesting charge cross-subsidies should be agreed with the employer or mitigated.
Charge cross-subsidies in this bracket of acceptable provided they are agreed with the employer are those where services to the employer are paid by the employee, scheme set-up costs borne by initial joiners only, where more is paid by those with bigger funds and between leavers and members.
One of the examples of poor practice listed by the working party underlines the shift in risk from the employer to the adviser that consultancy charging brings. Advisers cannot charge employees for services not received, for example. Advisers must remember that under consultancy charging, it is they who bear that risk, as well as the risk that the employer remains solvent while charges are being recovered, and not the provider.
Some employers will go for consultancy charging as an alternative to fees but the reality is there will be less financial advice in the workplace after the retail distribution review.
It is no surprise we are witnessing frenzied activity in the field of corporate pension scheme redesign. Some see it as advisers filling their boots before the commission guillotine comes down. An alternative perspective is corporate IFAs showing cash-strapped employers a last opportunity to refresh an old benefits proposition on easy payment terms.
John Greenwood is editor of Corporate Adviser