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Govt to launch ‘urgent review’ of consultancy charging

Steve Webb 480 LibDems DWP

The Government is set to launch an “urgent review” of consultancy charging due to concerns about the impact advice fees will have on workers’ pension pots.

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.

Pensions minister Steve Webb (pictured) has written to Association of British Insurers director general Otto Thoreson requesting evidence about the way business involving consultancy charges is being structured for group personal pensions.

In the letter, seen by Money Marketing, Webb says the Government will make a decision on whether or not to ban consultancy charging for automatic enrolment once officials have reviewed 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.

“I have received strong representations on this issue, including a number of calls for an outright ban on consultancy charging in qualifying schemes, and the Financial Services Authority has expressed concerns about whether consultancy charging in automatic enrolment schemes will be consistent with its rules.

“It is vital we establish appropriate measures to ensure individuals who pay consultancy charges benefit from the advice given, and we need clear evidence to decide how such measures should work.

“My officials are ready to carry out an urgent review of policy and practice in this area. However, they need access to detailed information about the way business involving consultancy charges is being structured by those among your membership that offer group personal pensions.

“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.”

The FSA has already said it will not allow a consultancy charge to reduce the value of a member’s pension contribution below the auto-enrolment minimum of 8 per cent.

Last week, providers and advisers warned the regulator’s stance risks creating a damaging advice gap for small and medium sized businesses.

Addressing the Corporate Adviser DC Summit last month, TUC head of campaigns and communications Nigel Stanley said workers should not be expected to pay for advice provided to their employer.


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There are 26 comments at the moment, we would love to hear your opinion too.

  1. Alistair Cunningham 27th November 2012 at 9:55 am

    “The FSA has already said it will not allow a consultancy charge to reduce the value of a member’s pension contribution below the auto-enrolment minimum of 8 per cent.” > Seems perfectly sensible. Case closed?

  2. Big LOL. I wonder who is going to pick up the pieces when employers are sued for setting up an inappropriate pension for the employees as they did it themselves without advice as they wouldnt pay a fee to an adviser and the adviser couldnt get paid via product charge because the contribution level was set at the minimum. I would love to know long Steve Webb (or any other politician or FSA bod) would remain in their if they didnt get paid to do their job? Advice costs money and has to be paid for or no advice will be given. The whole thing is a total mess and only weeks to go. Im begining to think John Sullivan is actually now writing the script.

  3. What they need is for payments to be made for advice proportionate to the amount on which the guidance is given. I know what about commission!

  4. Why are Government policies never thought through properly?

    It was much simpler with SERPs and S2P.

    It makes you wonder how politicians and civil servants manage to keep their jobs with this level of incompetence.

  5. It’s lucky all these trivial little things like how advice is to be paid for by hundreds of thousands of companies under auto enrolment and how RDR impacts those options have been ironed out well before a/e kicks in and well ahead of the RDR deadline to allow providers, advisers, companies, regulators to be totally clear.

    Oh, or alternatively a last minute panic might be nice as well?

  6. This really is joke – they go on and on about how long we have had to plan for RDR and at the 11th hour keep trying to change the rules. Is it back to the drawing board for all those ‘Proposition Agreements’ relating to GPP’s?

  7. A ban is the only sensible outcome 27th November 2012 at 10:35 am

    Advice should be by fee only in these cases. Unfortunately, the way consultancy charging works, there is no cap on the charges that can come out. This is similar to life bonds where a minority of ‘players’ offered and took commission of 8-10%. Same was true in the worst days of SIPP. This is another debacle waiting to happen and they are right to head it off at the pass. A ban on consultancy charging is the only sensible outcome.

  8. No Fee -No advice. Simples.

  9. So the options from the ‘banners’ for companies bringing in a pension with e/er contributions for the first time would be I assume:

    1. Tell Mr. Company Director, pay me a fee say £150 per member – so on 50 people, a nice cheque for £7,500 and also pay me each year to help with the admin… costing how much, perhaps £5,000pa? Thanks very much.

    2. Don’t pay for advice, phone NEST and make sure you take care of all the admin/reporting you need to do. Good luck.

    I don’t think they’ll be delighted with either will they?

  10. Commission and consultancy charging are not magic. Whatever is taken as a fee comes out of member pots. Employers will just have to put less in member pots and pay fees separately. I accept that the AE minimums mean that this may not be possible but the FSA has already made it clear they don’t want to see adviser fees taken from minimum contributions so not sure this is as big an issue as some may see it.

  11. Ban commissions, ban advice fees. No advice given = no miss sales
    NEST and MAS will sort everything for free and RDR will be a great success…..NOT

  12. An hourly rate charged to the employer is a deductible business expense but v.a.t. will have to be added. Yet another cost to be borne by the employer on top of the pension contribution. We all work for money and a self-righteous not for profit approach will inevitably end in disaster!

  13. I for one, will not advise on a government scheme of this nature due to the fundamentally flawed nature of its inception and costs.

    Any adviser who gives advice to anyone on NEST needs their head examining. It is not a regulated product and therefore it does not appear to be covered under permissions, or am I missing something, firms need advice, the FSA wants IFAs to be involved, but no one wants to pay for it.

    As Benny Hill was once fond of saying “Stupid Irriots”

  14. Perhaps you may be looking at this the wrong way. Instead of looking at things from the legislative and bureaucratic standpoint, try and understand things from the employers’ perspective. Put yourself in their shoes.

    If you are advising small business they usually fall into two camps.

    Those who want (or already do) to provide pensions for their employees. In my experience they are happy to pay the adviser a fee, provided you can show a cost effective route.

    The second group – who generally don’t want to pay an adviser fee – are the ones who are not at all happy about Auto Enrolment. In which case you need to show them how to save money and then they will gladly pay (I have found). This will often entail an explanation to the employees of the benefits of opting out – whether to buy their own with ad hoc contributions from the employer, or showing that in many cases it is a waste of time.

    Also bear in mind that those employers already contributing to a pension won’t qualify if they pay single premiums – even if these are in excess of statutory minima. Single premiums enable the firm to control their costs and align pension payments to the fortunes of the firm. They may also form part of the remuneration review process. Regular premiums are merely a fixed overhead and rarely decrease when conditions dictate.

    Anyway imposing this compulsory burden on individuals and firms who hitherto have not entered into workplace pensions, is a very perverse act at a time of a decade of recession.

  15. What a mess. I have small employers who want to do something before their mandatory date but don’t know if I am coming or going…

    It’s not all about “advice”, there is a fair bit of admin and hand holding involved.

    I think the best thing would be to simply take an early XMAS break and come back when the *hit has solidified!

  16. @ Ned Taylor: Sorry it doesn’t work like that

    COBS 6.2A.17.G says:

    “In providing unrestricted advice a firm should consider relevant financial products other than retail investment products which are capable of meeting the needs and objectives of a retail client, examples of which include national savings and investment products and cash deposit ISAs.”

    By definition this also includes nest.

    Even if you are restricted you are caught out. Since Ocotber the COBS rules have been changed so that the pension transfer and opt-out rules have been extended to ALL workplace pension, not just final salary pesnions.

  17. It’s a brave man who advises employees to opt out of auto enrolment I’d have thought because it’s a waste of time?

    Ok for those who can’t afford their contributions but other than that sounds risky for the adviser?

    Certainly one wouldn’t want to risk being in the position where the firm pays a fee to the IFA who then tells staff to opt out as it’s a waste of time?

  18. I wonder if Steve Webb might wish to contact the team that run NEST’s and suggest that they don’t take the 1.8% fee for each payment and not take a 0.3% fund managers charge. I’m sure they will be more than happy to provide a pension to everyone FOC!!! Oppps I almost forgot, they can all join a NEST and not have a final salary pension which we would have to pay somehow via our fees! God it’s so simple I’m running an MP and I won’t take any wages guys and gals!! hmmmmmmmmmm

  19. great, so we are just about to change our working methods away from being told what we earn by insurers. Now going transparent so everyone knows what they are paying.

    Now the government steps in and says we cant charge? isnt this a dictator?

    Far be it from anyone to say that the commission method actually worked! was the gpp market broken? why did we try and fix it?

    surely if an old style gpp had an amc of 1%, everyone knew where they were and what they were paying…… simple.

    stop meddling with what you dont understand.

  20. all the schemes I operated for the employers I dealt with were stagerhodler friendly, with a maximum AMC of 1% (not 1.5% and many had an AMC of 0.70%.
    We agreed the level of service with the employer based on any commission the scheme included and the level of work/involvement the employer wanted us to undertake.
    We had drafted new terms ready to role this in to the post RDR world, despite the fact consulanty charging would not apply to these old schemes and now we are being told that despite the scheme being stakeholder effectively, the employer may have to bump up their contributions are we?

  21. Pensions: invest deferred wages into a scheme, and then when you want your money back they won’t let you have it, except for a trickle. And when you die, instead of giving what’s left of the money you’ve saved back to your family, they hand it over to strangers. Money purchase pension schemes and annuities are immoral, disgusting things.

  22. Consultancy/Adviser Charging is supposed to be about a clear agreement – what you pay for advice and what you get. The problem is that Auto Enrolment doesn’t work like that – it is about inertia.

    Charging an employee an unrestricted amount for (unregulated) advice to their employer while hoping that they will do nothing about it is an accident waiting to happen. If the advisory community values its reputation should make it clear that it does not approve.

  23. As Steve Bee has rightly identified there is a tsanami of employers who will have to implement a workplace pension between now and 2016 peaking at 135,000 employers per month. As was mentioned above this can be split into 2 camps. Those that can/ will pay for advice; those that will not.It is an impossible task but while it exists there is also huge opportunity for advisers who really want to be involved. Set your fees accordingly and then get on with it.

  24. Might I suggest that any employer not wishing to pay your fees is referred to the Minister of State responsible for employment at the DWP.

    That is one Mark Hoban.

    No doubt he will provide the service required for the price of a Big Mac.

  25. Tim Page | 27 Nov 2012 12:47 pm

    If an individual comes to you for advice on pensions and agrees to pay a fee yes you are correct.

    However, the issue here is where a group scheme is being set up by an employer rather than going down the NEST route – how should an adviser be remunerated for their work?

  26. @ Harry Katz | 27 Nov 2012 12:30 pm

    erm… Encouraging opt outs in any shape or form is a breach of the legislation and you will be fined. Besides – I hope you have AF3 / G60 for advising on the opt out to another arrangement too.

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