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Advisers could pay 30% of guidance costs

Advisers could pay 30 per cent of the total Budget guidance levy under proposals set out by the FCA today.

The regulator says advice firms who come under the FCA’s A13 fee block and have annual income of more than £100,000 will contribute to the levy. Small firms which only pay the minimum regulatory fee, estimated at 41 per cent of advice firms, will be exempt.

The FCA is consulting on standards for the Budget guidance designed to support the Government’s flagship pension freedoms policy, and proposals for collecting the levy which will fund the service.

The service was initially due to be funded through a duty on providers and trust-based pension schemes. But earlier today it was revealed this would be extended to all firms deemed to benefit from the service.

The FCA is proposing using its current “A” fee-block structure to calculate the levy, with the following firms expected to contribute:

  • Deposit acceptors (A1);
  • Life insurers (A4);
  • Portfolio managers (A7);
  • Managers of investment funds and operators of collective investment or pension schemes (A9) and;
  • Advisers who do not hold client money (A13).

The FCA says small firms which only pay its minimum fee are exempt, as there is no “clear basis” for setting a levy that would be proportionate to the benefit that they would receive from the guidance service.

The Treasury will set the overall amount of the levy and it will be collected from firms by the FCA. The FCA will publish more details on how much firms will pay in October.

The FCA has set out three options for how to allocate the levy across the five relevant fee blocks.

The first is to base it on the FCA’s annual funding allocation, which would see advisers pay the largest proportion of costs at 30 per cent.

Deposit acceptors would pay 28 per cent, insurers would pay 17 per cent, portfolio managers 19 per cent and fund managers 6 per cent.

The second option is to split the levy equally so each fee block pays 20 per cent of costs.

The third is to allocate costs in line with what retirement products and services consumers choose. But the FCA says this would require further research and would not be as easy to implement as the other two options.

The FCA says: “We believe the firms that contribute to the retirement guidance levy should, as far as possible, be those that would potentially benefit when these consumers go on to purchase the financial products and services supplied by them.”

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Comments

There are 26 comments at the moment, we would love to hear your opinion too.

  1. The FCA says: “We believe the firms that contribute to the retirement guidance levy should, as far as possible, be those that would potentially benefit when these consumers go on to purchase the financial products and services supplied by them.”

    So basically we are expected to pay ourselves?

  2. The FCA says: “We believe the firms that contribute to the retirement guidance levy should, as far as possible, be those that would potentially benefit when these consumers go on to purchase the financial products and services supplied by them.”

    My firm gets paid for the advice and service it provides, with a ‘product’ being irrelevant in the context of remuneration. So why on earth do we have to fund this monstrosity, or to be more accurate the bloated salaries and benefits packages that its execs will be paying themselves. And who will be giving the ‘advice’?Why! Failed advisers – who else?

  3. Nick Pilkington 21st July 2014 at 1:41 pm

    I think this is one of the clearest examples yet of a policy which is going to be a total disaster for consumers.
    The advice is going to be incomplete & fragmented & many consumers are going to believe they are doing the right thing only to find out some years down the line that they have followed the wrong path.
    There will be no redress as MAS or whatever service delivers this will be exempt from redress.
    I for one will not enter into any incomplete guidance scheme where the likelihood of having compensation offered by FOS is almost a certainty & will continue to offer only a full & comprehensive assessment of my clients needs.

  4. Who do the FCA think we are Turkeys voting for Christmas. If the government want to give free advice then they should pay for it not us,or should it come out of the FCA entertaining allowance for senior staff to have away weekends

  5. Am I missing something? If those seeking guidance receive this service at no cost to themselves, at what point are they going to expect to face a charge or indeed, are we as advisers compromised in providing advice as they have received their guidance already? Execution only? I dont think so! What a farce. I will resent every penny taken from my firm along with that funding the MAS.

    Govenment is making this up as it goes along but refuses to pay for it even though it dug the hole for itself.

  6. Rough and ready numbers (but I think much clearer than anything from the FCA in their paper this morning)

    Imagine 300,000 people per year needing “guidance” Imagine this costs say £50 per head (I know it’s MAS so double that and think of a number to add) that comes to £15m. If IFAs have to pay 30% that’s £4,500,000. And assuming 4,000 regulated firms that’s £1,125 per firm, per year.

    Regardless of whether you think that is a big or small amount, forgive me but I think it should be me who decides how to spend my marketing budget, not MAS or any one else.

  7. Rt Hon Sir Arthur Streeb-Greebling 21st July 2014 at 2:01 pm

    Not quite true is it? This would be GENERIC advice and, as such, UNREGULATED. But certainly within the authority of accountants and solicitors who could charge for this advice ( which is mainly about tax issues anyway) all day long and not ‘contribute’.

  8. Legalised theft

  9. @Stephen and Sean

    You are both correct. Guidance will be issued. Will the recipient understand in detail? I doubt it. Will this guidance lead to s suitable outcome? Those doing the guidance will definitely be telling us how wonderfully successful they have been. The reality?

    If (and it is a very big if) these people are then referred to an IFA they will already have been ‘guided’ to the supposition that advice is free. Won’t they be in for a shock! This advice will again have to factor in all the extra levies and imposts imposed to make the ’guidance’ free in the first place – thus making real advice even further out of reach for those who may need it most.

    If there was a committee formed to work out ways how best to bugger up pensions, they couldn’t have done it better (or is that worse) job than the present incumbent clots.

  10. E L Wisty (an only twin) 21st July 2014 at 2:09 pm

    If the Government is of the opinion that the public need ‘free’ advice, then they should pay for it. Otherwise, we are paying for people to receive advice, so that they don’t need to pay us. This is bonkers!

    Also, what’s to stop the Government extending this ‘bright idea’ to include short term savings, medium term savings, NISAs, retirement planning, protection planning, home purchase and tax planning. In other words, we could pay for clients, so that they never have to engage us – ever ……..

  11. Its not right and its not fair !!!

    The only way to stop this nonsense is to withhold all fees, and I mean from all fee blocks, the whole industry in fact

    Words fail me !

  12. And to the Rt Hon Arthur Streeb-Greebling I say this: ..” and what is more, the lady wife agrees with me”

  13. Fascinating isn’t it that in the privately run sector transparency is the aboslute rule – every penny accounted for (or big fines), no smoke and mirrors cross subsidies allowed, each bit of the costs clearly delineated – the list goes on.

    Then we look at the public sector run side of things……

  14. You shouldn’t be surprised, this is what dictatorships can do.

  15. Nick Pilkington 21st July 2014 at 3:02 pm

    FCA have to be a little careful of loading costs onto the industry.
    The banks have already decided that giving advice (apart from to the very rich) is not viable.
    As costs & compensation keep mounting up more & more entities will withdraw from the market leaving consumers without representation & a dwindling number of advisers for the regulators to get their costs from.
    As more entities pull out & costs rise this will become a more & more rapid escalation with a point of no return not so very far away.

  16. The whole idea of free guidance (initially styled by the boy chancellor as advice) with an impossibly tight deadline for its delivery is a further example of ill considered policy on the hoof. Notice how carefully he called it guidance at least 5 times on Radio 4 News this morning. When are politicians going to cease viewing the financial services industry as a limitless pot of gold which they are free to plunder at will?

    To suggest that the financial advice sector is going to benefit from this initiative is disingenuous to say the least! Dick Carne

  17. “We believe the firms that contribute to the retirement guidance levy should, as far as possible, be those that would potentially benefit when these consumers go on to purchase the financial products and services supplied by them.”

    How much are Lamborghini going to pay? I know that not all pensioners are going to buy Lambos, but *some* are, according to Osbo, so surely Lamborghini should stick some cash in, along with Jaguar, Harley-Davidson, speedboat manufacturers and everyone else who makes stuff for people with more money than sense.

    How many are actually going to purchase the financial products he refers to? I do fear that a lot of people will end up withdrawing the entire fund simply because – after their phone chat with a hurriedly-trained temp – it’s the only option they understand.

  18. Governments are dishonest in so many ways and this is another example. Lacking integrity and guts, they either delegate unpopular actions and policies to local government for enforcement or raise tax on minorities that can have no influence on the outcome of the next election. Everything they do is determined by what will be the consequences at the next election and fairness, decency, sincerity and morality gets sidelined.
    So when Cameron goes on about Putin he should look at his own ethics – an extreme example perhaps but at the end of the day both leaders are looking at their own survival.
    And of course the so called independent FCA fall into line.

  19. Dominic Thomas 21st July 2014 at 3:21 pm

    Dear George,

    When you mentioned this rather optimistic idea in your Budget announcement, we (well a number of IFAs) were all rather surprised at the time…particularly by two rather important words that you used “free advice”. It now seems that both of these terms were not entirely accurate, what you meant was guidance paid for by someone else, which I guess doesn’t really have much headline appeal, yet I can certainly imagine that certain Government and Civil Service departments will now have calculators at the ready to guestimate precisely how much “guidance” will actually cost and what a gigantic white elephant is now being grown in the Westminster zoo (shortly to appear on YouTube… that’s a website with video clips not the hot cans that run underneath London). George, I’m not a betting man, but may I suggest that you invest in a business that makes large sized shovels (or better still diggers – those builders need a hand too) which will fly off the contract supplier shelves in due course… which will be required as the muck shifting commences.

    Whilst I applaud your optimism about pension reform, I am finding this a bit challenging…it’s something of a paradox…(a bit like Israel being in Europe but not the UK)…perhaps you could explain how people are bright enough to figure out how to make their money last a lifetime, when most seem unable to make it last a month. These same folk are not bright enough to figure out whether a mortgage, (typically a 25 year loan that it repaid each month – something that reduces, unlike the national debt) is too expensive for them…don’t forget that the regulator (the one that now cannot be confused with the Food Standards Agency) doesn’t think that the population can actually work out what 1% is… (honestly they do believe it), yet of course it’s the teachers fault for their appalling numeracy results (well not the current bunch of teachers, of course if you are over 30 we used to call it maths and this really applies only to those over about 55 right?). Ah…. Of course…. Mortgages are for younger people, pension drawdown for older people… silly me. I get it now.

    I can see that you have a tough job, with basically no previous successful acts to follow. Successive Governments have not managed to achieve spending less than they earn, which is rather fundamental to both sets of mathematics and a requirement for basic financial acumen, which is why people that pay a lot of tax tend to look for ways to pay less…. don’t believe me? Here’s a quick quiz…you’ll figure it out easily enough – after all it’s your rules. Take income tax; let’s keep it simple – just the DIRECT type, none of that national insurance malarkey. How much does someone earning £25,000 pay in income tax? Ok got that? How much does someone earning £250,000 pay? How many more times tax do they pay? (Clue it isn’t 10x) go get your pencil, I will wait…. I know it’s a tough one huh?

    Wow, this is hard on the old grey matter right? its only Monday…you might remember that fella who was nearly the England manager said he couldn’t understand tax calculations either, but your boys over at HMRC thought his dog knew the inside track at Monaco, which reminds me, did you watch the German Grand Prix this weekend? Those Germans, they are winning everything at the moment – wonder why? Or did you have a flutter on Rory? If you have one of those 1-2-3 Spanish Bank accounts you actually get money every time he wins! Fantastic. Anyhow, if that is really all we (the public) are capable of, it’s hardly surprising that we get in knots with really confusing terms like tax avoidance and tax evasion…as for transfer pricing (yeah not the thing Harry was found not guilty of) hey hold on… but the sort that Rock Bands, Coffee shops and large multinationals use to really get the crowd screaming at the referee.. a bit like I do with those gig tickets that sell out in 3.2 seconds, and have to pay extra to use my credit card and then they have the gumption to tell me to print off my own ticket! and then I find that they have another date… amazing that those huge venues always seem to find a slot in the diary…the ASA never seem to see my point. Which reminds me… don’t take it personally about the IPO of Royal Mail, it is very difficult for the experts over at to get their numbers right…I mean, they tend to get confused about who the “client” really is, themselves or their clients. Thankfully we have a new regulator that can sort this sort of thing out once and for all though, it’s now all outcomes and results, and how fitting that they are relocating to the Olympic Park at Stratford, where the house prices are sure rise. The area is so well catered for they will save £100k a year on away days. See, every silver lining…and Britain is the gold standard of regulation.

    Anyway, back to those MAS folk, are they getting a bonus for the guidance they provide? You know numbers of people and stuff? If so can I have one of their decent leads? I’m told I am paying for MAS and probably your free lunch on this free pension guidance stuff…Ah, just thought… benefit in kind rules may need to be altered if I do that.. Oh well, it was worth it for the £40 luncheon voucher. But seriously George, I do wonder if the MAS or the call centres at pension companies are really up to explaining terms like reduction in yield, which might now need to taught at school, but sadly those for whom it applies have long since left school, those currently at school or even University won’t be retiring anytime soon… perhaps anytime! Ha! So perhaps you could spend a bit more on libraries (those buildings with books, that now also have computers and special reading rooms) so that the majority of the population (all voting age) might actually have a fair stab and understanding illustrations with negative returns because whilst you are worried about inflation, your regulator suspects that you might just have a problem with deflation – which is actually rather good news because, well… everyone can put off making any decision about any purchase because it’ll be cheaper down the line right?…. that said, I guess the advantage of the new rules is that local authorities can raid pensions to pay for care fees, and without legal aid, nobody will be able to afford to complain… and if they do… well we’ve at least now got the ultimate option of “assisted death”… all those younger people waiting to buy a home… I wouldn’t assume that a decision will always be made in your interest… and of course if there are any unpaid taxes, at least HMRC can now raid accounts, so we can all be assured of the survival of services that we all benefit from….right?

    Anyway, enough from me, like you I have to wear several hats and one of them is trying to run a successful small business. Any suggestions? y’know other than the obvious – focus on what you can control and ignore the rest.

  20. If an advice firm benefits then it means a client would need to pay said advice firm, meaning the ‘free advice’ isn’t free. What an utter shambles.

  21. The solution to this problem is simple. Let the companies that hold pension investments pay for vouchers for each customer so that the customer can redeem the voucher with an IFA. The IFA then gets paid for giving advice. This is much better than IFAs paying for advice that they are not giving.

  22. So, the FCA believe that the “levy” should only be paid by organisations who will benefit from the delivery of the “guidance”. Let’s apply some logic to that idea and see where it gets us:

    1) If advisers are to pay towards the levy it MUST therefore be the opinion of the FCA that advisers will benefit from the delivery of this “guidance”. 2) If advisers are to benefit then there MUST also be an assumption that people who receive the “guidance” will then need to seek regulated advice. 3) Ergo, it MUST already be the opinion of the FCA that the guidance will not be sufficient to help the people who receive it, otherwise they would not subsequently need to seek the professional help of a regulated adviser.

    If the FCA believe that the guidance will not be sufficient to help people, why launch it in the first place?

    Let’s be clear, the only organisations who are GUARANTEED to benefit from these pension changes will be the providers of retirement and savings products, or the general economy and the Treasury if people withdraw all of their pension assets. If anyone from the financial services industry should pay (and for the record I don’t think that the industry should pay), then it should surely only be product providers.

  23. @ Ken – At £500 a pop that will only cost pension providers £150 million a year – I’m sure they will happily sign cheques like that!

    And what about clients that have complex issues that would normally cost £000’s to advise on – They wont find an adviser anywhere who will take thier measly voucher as payment. Or clients with a £10k pot – is it fair to recieve £500 to tell them to take the money?

    The sad fact is that the only way they can fund this is via the industry. This is a shambolic mess created by a desperate chancellor who has no clue what he’s doing and is now offloading the responsibility onto people that have no way of fightng back.

  24. Heres a thought! A simple solution to the whole problem.

    Ban all pension providers, insurers, DB schemes etc; from being able to crystallise any benefit until the retiree obtains advice and a signed certificate from a regulated financial adviser, IFA or Restricted (on the assumption that disclosure is robust).

    I know the arguement against this is that this plays into the hands of advisers and a cost to retirees; but why shouldn’t there be a cost? The fact is, that market forces will quickly come to bear. The FCA and the governments project MAS etc should encourage retirees to shop around and this will force the cost for them down (thats Capitalism for you!).

    Outr of this will flourish a highhly regulated but expert level of service to all retirees; who will also have the full protection of the FSCS etc and remove this rediculous advice masked as ‘guidance’, and create trust in the adviser world, encouarging saving again.

    Given this green light, the innovation gap that Martin Wheatley bemoans woudl quickly be closed.

    The only fly in the ointment is that poor George O will have to backtrack…but isnt that what politicos do all the time?

  25. For a £100 voucher they could have a free consultation for 1 hour. 1 hour is all that would be required to give a general outline of the options available. £100 per customer is not much compared to the profit pension companies have already received from their customers’ investments. Advisers offering the service would have to have a certificate of competence similar to the SPS. The structures are already in place to deliver what the chancellor wants.

  26. E L Wisty (an only twin) 22nd July 2014 at 1:13 pm

    Wouldn’t the simplest solution, and best means of achieving the regulator’s dark agenda, be to provide all our services free of charge until we become insolvent. That way, the public’s financial planning could be updated and the FCA would no longer be troubled by us pesky IFAs.

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