Advisers say the case for their contribution to the cost of the guidance guarantee remains “unproven” despite a significant reduction in the levy charged to the sector.
Last week, the FCA proposed a reduction in the levy paid by advisers from an initial proposal of 20-30 per cent of the costs to just 12 per cent.
The regulator says it recognises it is not clear whether advisers will benefit from the guidance guarantee and they should therefore pay less than firms such as banks and life insurers.
It says advisers who do not hold client money should pay 12 per cent of the costs, while deposit acceptors, life insurers, portfolio managers, fund managers and operators of pension schemes should pay 22 per cent each.
The FCA says: “We accept the point made by respondents that financial advisers will only benefit if, after using the guidance service, consumers seek advice from regulated financial advisers.
“We also accept it is clearer that product providers in the other fee blocks are more likely to benefit as the monies released through greater pension flexibility will be distributed amongst them.”
But Pilot Financial Planning director Ian Thomas says his firm is unlikely to benefit at all from the guidance service.
He says: “The type of clients who are suitable for my firm will have already sought advice. It will be very rare for me to get any new clients as a result, so this is just another cost which makes advice unaffordable for consumers.
“The case is unproven even at 12 per cent whether this will bring any additional clients. We have not seen the business case.”
Personal Finance Society chief executive Keith Richards says: “Advisers should not pay any more than they currently do. The significant marketing budget enjoyed by the Money Advice Service should be redeployed to fund the guidance guarantee.”
In July, the FCA proposed three options for allocating the levy across the five fee blocks: the first was to base it on the FCA’s annual funding allocation, which would have seen advisers pay the largest proportion of costs at 30 per cent.
The second option was to split the levy equally so each fee block pays 20 per cent of costs, and the third was to allocate costs in line with what retirement products and services consumers choose.
The cost of the levy is not yet known, but the Association of British Insurers has said it could be as high as £13m, while The Pensions Advisory Service says it could reach £20m.
When the FCA first consulted on the pensions guidance levy, it put forward a number of options for allocating the cost which could have resulted in advisers picking up 20 to 30 per cent of the bill.
In Apfa’s view, and as we explained in our formal response, this was out of all proportion to the benefits that advisers were likely to see from the guidance service, and didn’t take account of the fact banks and providers were going to benefit far more on an ongoing basis than advisers were.
Following a meeting with the FCA, at which they acknowledged our concerns, we submitted further evidence that indicated the likelihood of people seeking regulated advice after a pensions guidance session was limited.
We are therefore pleased the FCA has acknowledged the strength of our arguments, as well as those of the adviser firms that responded to the consultation. Reducing the proportion allocated to advisers to 12 per ceent – which we estimate could mean a saving of between £2-4m for advisers – is a big step forward.
However, in our view this is not the end of the story. We believe this allocation still over-estimates the benefit advisers are likely to see as a result of the guidance service.
We will therefore be making sure HM Treasury and the FCA monitor carefully how many people take up the guidance, and what they go on to do next.
If the figures show regulated advisers are not benefiting from the guidance service, then we will be pressing the FCA for a further reduction in advisers’ share of the bill.
Chris Hannant is director general at Apfa