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‘FSA takes huge risk with GPP factoring ban’

IFAs and product providers have criticised the FSA’s decision to extend its proposed ban on commission to group personal pensions, claiming fewer employers will take advice and scheme take-up will fall.

In its paper on delivering the retail distribution review, the FSA replaced arranger charging with consultancy charging, rejected factoring on GPPs and proposed a ban on commission on investment products linked to occupational schemes.

The FSA says: “All firms that assist employers with the setting up or administration of GPPs must agree their own charges with the employer in question, rather than being paid by commission set by the pension provider.”

Consultancy charging would apply regardless of whether the end investor, the employee, receives advice. Where an employer is unable or unwilling to pay fees direct to an adviser, the employer and its adviser would agree the cost of the service and how these would be paid from employees’ funds.

The new rules will not apply to existing GPP schemes or new members.

The FSA has also rejected factoring, suggesting it could simply become a basis of competition among scheme providers in place of commission and trying to standardise factoring and may infringe competition law.

Jobson James director Miles Goodworth says: “From an industrial relations’ perspective, employers would prob- ably would not be keen to drop the cost of advice on to their employees.

“If they are going to do anything they will have to stump up the cost themselves, which is yet another financial burden so I think many will go without advice.”

Aegon head of business regulation Steven Cameron says: “The FSA is taking a huge risk by proposing to extend its provider factoring ban to GPPs. The FSA has previously admitted that banning factoring is most likely to have an adverse impact on modest and low regular savers. This is precisely the market GPPs serve.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Do these proposals apply to the direct salesforces of banks, life offices, the likes of Mark Weinberg or multi-tied firms?

    If not then I can’t see how this is going to benefit consumers, can you?

    In fact some might argue that this is anti-competitive and as Steven Cameron says the FSA is taking huge risks, I thought the regulators were keen to reduce risk and maintain ‘diversity’.

    We need regulatory balance, I see none.

  2. Lets not all be so naive, this is part of the Government strategy to feather their “NEST”

  3. Advice, what advice, that is the problem. I wonder how many members of workplace pensions such as GPPs and Corporate Stakeholder receive any advice other than ”We have a company pension scheme and can join it or not”. I am quite sure in the majority of cases that there is no mention of “Would you like to see the Financial Advisor and talk about what is best for you”. Contrary to popular belief by the general public advice is not generally free, it has to be paid for. Historically it appeared to be free because it came out the allocation rate of the funds being invested in. Once the move to paying Fees becomes reality there are going to be a lot of Employers saying “Fee”, why should I pay a Fee, and what do I get for this Fee. This is great opportunity for advisors to actually talk to their scheme members and possibly take care of their financial planning needs. Free introductions from the workplace from people who actually want to listen to what you have to say.
    The world is changing fast and the internet may hold the key to communicating with scheme members via the internet applications, this drives down the cost to advisors and they don’t physically have to be there unless they want a face to face meeting, which can be done via online conferencing.
    At the moment some providers have online portals but they do very little other than allow the administration of plans, but there are platforms in development that would allow advisors to have complete control of the admin/portal platforms, the funds available, and the ability to communicate with all parties concerned. They will have useful tools like member engagement, profiling to suggest appropriate products, mobile communication, so members can access their account 24/7/365 from anywhere.
    Remember the FSA does nothing without consulting first; they have the interest of the public in mind when they do these things.

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