The FSA's move to outlaw IFA commission on stakeholder if life offices' call centre staff take clients through decision trees has met with outrage from the pension industry.
The industry claims this is an unexpected interpretation of the indirect benefit rules by the regulator which leaves commission-based IFAs potentially liable for hours of unpaid work.
Even if an IFA has advised an employer, performed a worksite presentation, distributed marketing material and made recommendations to individuals who take the next step of applying for stakeholder, they will not be paid commission if life office representatives enter the sales process.
The FSA suggests such an exercise would breach the indirect benefit rules.
In its view, the IFA will probably have been paid a fee by the employer.
Therefore, if employees subsequently go to the life office and are taken through the decision trees over the phone, then the company is doing the work of the IFA.
Aifa director general Paul Smee says he is very concerned by the interpretation of the rules and is calling on the FSA to explain the full implications of its decision.
Scottish Life head of communications Alasdair Buchanan says: “There is no new rule but there is an element of interpretation on whether it is work the IFA is expected to do.”
The FSA's interpretation of the rules governing indirect benefits relies heavily on the IFA taking a fee from the employer. In such a scenario, the employer is the client and the IFA has no responsibility for individual employees. Yet it is not clear that this will be a typical advice situation for stakeholder.
For example, the IFA, who is just as likely to be fee-based as commission-based, could have agreed an advice package which includes giving prospective scheme members brief individual consultations before allowing the life office to take on the grunt work of filling out forms. This part of the sales process might include tree-walking but only after the IFA has made his recommendation.
Scottish Equitable pensions development manager Stewart Ritchie believes the FSA's interpretation is an extraordinary restriction. He has expressed concerns that the regulator's position has not been well enough considered as the rationale behind the move seems to oppose the Government objective of getting as many people as possible to buy stakeholder.
The requirement could have the effect of forcing IFAs down the fee route for stakeholder or it could make IFAs avoid the support of life offices in fear of losing their remuneration. But it is unlikely there are many IFAs who will not take all the help they can get in the 1 per cent environment.
The 11th hour interception of the FSA in the business relationships between life offices and IFAs stacks the odds yet again against advisers being paid their worth in the stakeholder market.
IFAs have reacted angrily to the move. Informed Choice managing director Nick Bamford says: “If an adviser recommends a provider and that person then goes direct, is the consumer any worse off? Why should the adviser be penalised?”
Maddison Monetary Management managing director Mark Howard says: “I am gobsmacked. This will be a major problem if advice has been given but the life office also goes through a decision tree.”
Torquil Clark pensions development director Tom McPhail describes the move as unprecedented interference.
My Money Adviser managing director Ann-Marie Martyn says: “IFAs will have to find a way of helping clients through the decision tree maze cost-effectively and avoiding product providers. Perhaps they should refer calls to the FSA or does that mean the FSA then gets paid?”
Some life offices, including Standard Life, have said if the client needs guidance through the decision trees, they will refer them back to the IFA.
But this could result in advisers giving hours of individual advice for which they may feel they are not justly remunerated.
Life offices which do pay commission in the circumstances described will be accused by the FSA of executing non-compliant sales.
So when does the life office, in a bid to secure stakeholder distribution through IFAs, overstep the mark and go too far to help advisers?
Standard Life has met with the FSA to try and clear up the issue but for other parties the issue remains murky. This must be of serious concern given IFAs are just weeks away from helping clients set up the first stakeholder plans.
Bamford says: “The question of whether the employer or employee is the client is one which should have been answered a long time ago. We have given advice and deserve the commission.”
Bruce & Partners partner Adam Bell says: “The whole point of decision trees is that they are not advice, they are just marketing literature.”
Clerical Medical is undecided over whether it will get involved in tree-walking at all for fear of overstepping the fine line between guidance and advice. Clerical might be fearing that in the event of any stakeholder misbuying cases emerging down the line, its tree-walkers might be held responsible.
DBS spokeswoman Sue Lewis says: “We are calling for urgent clarification from the FSA about exactly what does and does not fall into the category of indirect benefits. I would also ask for us to have this clarification quickly because time is running out.”