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Advisers in rethink on consultancy charges

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Legal & General says some advisers are rethinking consultancy charging agreements with employers due to concerns about the impact the fees could have on low earners and those who are close to retirement.

Consultancy charging was designed by the FSA to allow corporate advisers to charge employees’ pension pots for advice given to their employer.

The charging method has come under scrutiny in recent months. The Department for Work and Pensions is in the process of reviewing consultancy charging while earlier this month, Which? wrote to pensions minister Steve Webb urging the Government to ban consultancy charging for automatic enrolment.

L&G pensions strategy director Adrian Boulding says some advisers have revisited consultancy charging deals due to their concerns about the impact the fees could have on certain scheme members.

He says: “The problem is, you can have an overall level of consultancy charge which at first glance looks reasonable for the work the adviser is doing.

“But when you look at specific members, the ones on the periphery such as the low paid or those who are close to retirement can be hit quite hard.

“In some cases, we have seen a consultancy charge which could give the member a neg-ative total return on the product. If you have a situation where the person will get less than the value of the contributions going in, it becomes difficult. We have had discussions with advisers where they have ended up going back to the employer because they were unhappy with how the charges were shaping up for particular groups of employees.”

AWD Chase de Vere corporate advice manager Jon Dixon says: “Any consultancy charge has to be proportionate and you certainly should not have a situation where people are getting back less money than they are putting in.

“If you apply a flat consultancy fee regardless of contributions, it will have a dis-proportionate impact on low earners. A consultancy charge which is a percentage of contributions, rather than a flat fee, would address this problem because it links the amount the employee pays to the amount they contribute.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “It is hard to justify a consultancy charge which results in people getting negative returns but, if you ban consultancy charging, you are still left with the problem of who will help small firms deal with auto-enrolment.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. But if you have a consultancy charge that is a percentage basis you effectively are in the position that some members are subsidising the advice costs of others.

    The time spent advising someone whose contributions will be £500pm will be no different to the time spent on someone whose contributions will be £25pm but a percentage basis the adviser will be paid a lot more!!

    Treating customers fairly? It is a real mess just waiting to happen

  2. Yet again I’m afraid I just don’t get it.

    We are now in an era where firms MUST provide a pension for their employees. So why on earth don’t advisers charge the firm? Is it greed? If the firm doesn’t want to pay what’s wrong with just walking away?

    Anyway say the firm has 20 employees. Let’s say the average wage is £26,000. Let’s say the employer wishes to contribute 4%. = £20,800. So in year one he contributes 3%. That equates to a fee of £5,200 – what’s wrong with that? Too little for those high cost high expense ‘benefit consultants’? Could it be the case that the ‘benefit’ are for them rather than the customer?

    Don’t tell me that the employer can’t/won’t afford the extra 1%. I know he can’t officially claw back through salary, but for heavens sake it is only a daft Civil Servant that can’t see that when it comes to the next salary review the employer will take into account the imposition of this extra tax.

  3. FCA have said that advising employers is a non regulated activity and can be carried out by non regulated non qualifying individuals !!

    So they charge the employers but their fees are paid from members plans without the employees knowledge or agreement

    It is scandalous

  4. Do employers pay accountants and payroll processors? Goodness someone will advocat an employee pays their employer to work for them. Don’t be afraid to charge the employer, yes they might have to increase their output price for goods & services.

    Q. How do HL employees fair, does HL pay a fee on behalf of staff or do they increase the AMC applying to staff pension pots?

  5. I agree with Harry. If the employer will not pay, walk away. Let them get advice from which for free.

  6. Who pays the £1.80 fee from each contribution for the NEST scheme – employee or employer? They won’t be getting the full amount paid over in the NEST scheme with that charge will they and is the £1.80 Vatable. Failing that can we call the Adviser Charge a Policy Fee? What a mess – yet again Steve Webb is clueless not one person thought it through when it was first mooted.

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