The corporate advice market has been thrown into chaos five weeks before the RDR deadline after the Government announced plans to carry out an “urgent review” of consultancy charging.
Under RDR rules, advisers who advise employers will be able to levy a consultancy charge for the work they carry out. This will be deducted from the pension pots of employees who join the company pension scheme.
Advice firms planning to work with employers ahead of their auto-enrolment staging dates have developed their business models assuming consultancy charging will be allowed, with many small and medium-sized employers expected to be unwilling to pay an upfront fee.
But Pensions minister Steve Webb (pictured) has written to Association of British Insurers director general Otto Thoreson to raise concern about the charging method and launch a review.
In the letter, Webb says the Government will make a decision on whether or not to ban consultancy charging for auto-enrolment after reviewing the evidence.
He says: “I am increasingly concerned about the way consultancy charges might interact with automatic enrolment. They should only be deducted from an individual’s pot where there is a tangible benefit to that individual.
“Once I am in possession of the facts, I shall be able to decide whether or not to permit consultancy charges to be levied on automatic enrolment schemes.”
When questioned about the letter by Money Marketing at an ABI RDR conference in London this week, FSA head of investment policy David Geale said: “We would not expect consultancy charging to be used that often. It is within the DWP’s gift to stop consultancy charging.
“Consultancy charging is fine where it is in the best interests of the client, and that has to be a tangible benefit. If it is not in the best interests of the client it is not acceptable and we would not expect it to be used.”
Money Marketing understands one option being considered is capping charges for auto-enrolment schemes, a move which could force advisers to renegotiate previous trail commission deals with providers.
Syndaxi Chartered Financial Planners managing director Robert Reid says: “You could see this coming from a mile away, it is absolutely shambolic.
“We have DWP saying you cannot erode contributions through consultancy charging, the FSA saying it has to be a better deal than the auto-enrolment minimum and a bunch of SMEs who won’t pay an upfront fee.
“It beggars belief that we are five weeks away from the RDR and advisers still have no idea whether they can levy a consultancy charge for setting up a group scheme.”
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