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.”