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Apfa: How the guidance guarantee should be funded

Apfa says the costs of the Budget guidance service should be allocated in line with the retirement products and services consumers choose amid concerns alternative FCA proposals would place a ”disproportionate” burden on advisers.

In a consultation paper in July, the FCA set out three options for how to allocate the levy for the service across five relevant fee blocks.

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

The second option is for each fee block to pay 20 per cent of costs, and the third is to allocate costs in line with what retirement products and services consumers choose.

But the FCA said the third option would require further research and would not be as easy to implement as the other two options.

In its full response to the consultation, Apfa says the first two options would result in a “disproportionate” level of costs falling on advisers, given the benefit they will derive from the service compared to other firms such as life insurers and fund managers.

It says it expects only around 4 to 6 per cent of consumers to take advice as a result of the guidance guarantee. This is based on an assumption that 20 to 30 per cent will take up the service, and of those 20 per cent will go on to see an adviser.

Apfa says: “The third option is the only fair and proportionate approach. However, we appreciate that this may require further work, and therefore an interim method of allocation may be required.

“We suggest that more work is done to identify appropriate ways of measuring what consumers do with their pension pots once they have received the guidance.”

In the meantime, Apfa says it would like to see the levy allocations based on firms’ turnover, which it says will better reflect the size and resources of the firms in the different fee blocks.

Also in its response, the trade body says that giving consumers a clear record of the guidance received would help to create a smooth transition to regulated financial advice.

Apfa says: “The hand-off to further services is a crucial step in the guidance process.

“Those consumers going on to take financial advice would benefit from a clear record of the guidance received. This could be presented to the financial adviser to eliminate a degree of duplication and smooth the customer journey. 

“We know that The Pensions Advisory Service is currently working with advisers to draft a document that would be useful at the time of hand-off to advice. We encourage the FCA to consider this work as part of the guidance process.”

Apfa adds that those providing the guidance should not need to have specific qualifications, although they should be able to demonstrate “competence”.

Earlier this month, TPAS called for minimum qualification standards for those delivering the guidance service. 

Apfa also notes that the FCA consultation makes multiple references to “authorised Independent Financial Advisers”. It says it assumes this is a drafting error by the FCA and the intention is for users of the guidance service to be referred to all regulated advisers, and not just independent as opposed to restricted advisers.

An FCA spokesman confirms the term is a drafting error and will not appear in the final policy document. 

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  1. A new and costly guidance service isn’t necessary ~ at all. APFA seems to be overlooking the fact that guidance is already available to consumers FOC from the great majority of qualified and regulated intermediaries who don’t charge prospective clients for their initial consultation.

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