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Govt under pressure to tackle ‘blended’ fund charges

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The Government is facing calls to clamp down on “blended” fund charges following the decision to ban consultancy charging for automatic enrolment.

Some providers allow employee benefit consultants to be paid for constructing a default fund on behalf of an employer by increasing the annual management charge paid by members. These are known as blended fund charges.

The extra charge, which experts say is usually between 8 basis points and 15 basis points, is then rebated to the EBC by the provider.

Earlier this month, the Department for Work and Pensions confirmed consultancy charging will not be permitted for auto-enrolment, however it did not set out what falls under the definition of a consultancy charge.

Legal & General pensions strategy director Adrian Boulding says: “The serious issue with blended funds is there is an ongoing revenue stream going to the investment adviser which is providing that service. To me that sounds like a consultancy charge and we should find a way to disclose it as such.

“The obvious solution is to have the FCA regulate the provision of advice to employers.”

Aviva corporate benefits head of policy John Lawson says: “If the DWP includes blended fund charges in its definition of a consultancy charge it will be a massive issue for some EBCs.”

Capita Employee Benefits and Towers Watson say they do not operate blended fund charges, while Mercer refuses to confirm whether it uses the charging method.

A DWP spokeswoman says: “This is not a priority area for us but we are still developing the detail of the regulations. Employers need to be able to understand what charges will be levied and what this price includes.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. It may not be a priority for the DWP but it is for those of us trying to compete with the ECB’s.

    Some of us would happily run schemes on an 8 to 15 basis points proposition but are now being prohibited from doing so – largely down to the greed and stupidity of our peers, I know.

    Why are one class of advisers able to adopt a charging structure that is now shut to another group of advisers?

  2. Not a priority – no of course it isn’t because you are all in each other’s pockets.

    As a member of two very large pension schemes that work with a top 3 EBC I am invested in funds that they have bespoked for employees of these pension schemes (and used to take their income). Funnily enough, the default profile, the underlying funds and the investment percentages are exactly the same. And the performance is crap.

    The investment consultancy charge will have just as much impact on my end pension as 15bps that was being used to fund some small initial commission.

    The difference with the initial commission model is that someone would come and see me, make sure I’m saving enough and explain how it all works. Not sit in a office changing a logo and a fund name and then trotting it out to client after client as something bespoke to their workforce.

    EBCs – remember these are the people that recommened Equitable to all their clients as nil commission must be better.

    And then we have had defaults that have to be Uk Equity, the Uk and O/Seas, the Emerging Markets and now DGF.

    Bunch of clowns who just keep inventing new ways to make money for themselves and use their relationships with the government departments to force the market to follow the apporach that works for them.

    Still can’t ignore the more that people pay into a pension the better the end result. The more engagement and advice they get, the more they will pay in.

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