In September 2013, the Government introduced regulations preventing the use of consultancy charges in auto-enrolment schemes (except where there was an agreement in force prior to 10 May 2013). From April, new rules come into force also preventing firms from receiving consultancy charges in respect of legacy schemes. A 0.75 per cent cap on charges in respect of default funds within qualifying schemes will also be introduced. While commission in respect of pre-RDR schemes will not be switched off until April 2016, in practical terms this cap will mean many providers turn-off legacy trail commissions in order to comply with the new requirements.
The FCA has already warned against attempts to replace these payments with other forms of remuneration, specifically adviser charging. While the new rules do not ban adviser charging in respect of qualifying schemes, the regulator expects firms to not devise any process or mechanisms that could lead to members paying for services they do not need.
There should still be plenty of opportunities to engage employers on a fee basis. By April, firms with PAYE schemes with 50 employees will be reaching their staging dates. In addition, employers already subject to auto-enrolment may need to re-visit their choice of scheme if the provider is unwilling or unable to meet the 0.75 per cent charge cap and will need to either change the scheme’s default investment option, or look for an alternative qualifying scheme.
Graeme Jones is regulatory policy and technical consultant at Bankhall