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.”