The FCA has fired a warning shot at advisers hoping to work around the Government’s auto-enrolment commission ban.
According to the regulator, some firms are planning to replace commission – which will be banned for workplace pension schemes from April 2016 – with other forms of member-borne remuneration.
The FCA says this would not be in the “spirit” of the proposed rules.
It says: “Based on discussions with industry, we understand that some firms are looking to replace [commission] payments with other forms of remuneration, such as the use of adviser charging.
“Firms adopting alternative mechanisms through which members effectively pay for advice to employers or for services they do not want or need, is not in line with the spirit of our proposed rules.
“We accept that there are benefits for members being able to use their pension funds to fund advice in certain circumstances. For instance, where they cannot afford to pay a fee to an adviser, but require advice.
“We do not propose to ban payments from schemes to advisers completely. Instead, we propose to require that any services provided to a member by an adviser can only be paid for from the member’s fund where the member has explicitly agreed to provision of those services…This will help to ensure that members only pay for services that they require.”
Syndaxi Chartered Financial Planners managing director Robert Reid says: “I have heard advisers talk about doing this, so it is not fantasy.
“If the FCA wants to shut this down they should introduce an explicit requirement for providers to get a sign-off from every individual before moving to adviser charging on a group scheme.”
The comments were made in an FCA consultation setting out how DWP proposals to cap charges for auto-enrolment default funds at 0.75 per cent will be implemented.
The price cap is due to come into force in April 2015, with a subsequent ban on active member discounts and adviser commission set to be implemented a year later.