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Independent View

The Government&#39s stakeholder proposals include a limit to charges, which

has already forced down charges on existing pension products.

Whether the consequent reduction in commission defeats the Government&#39s

intentions regarding distribution of stakeholder remains to be seen.

After attending many industry seminars, it is clear that large numbers of

IFAs do not intend providing, on a much reduced level of remuneration, the

advice, implementation, admin and after-sales service they currently


Admin costs should reduce with IT but the margins are so tight that any

admin problems will severely damage the profitability of the adviser.

E-commerce is necessary to speedily obtain policy and investment data,

research the market and find tax and technical information online. Clients

will access their own valuations.

The opportunities for introducing services and enabling busy people to

communicate and do business with us are exciting. We fail to embrace the

developments at our peril.

The future is coming at us all the time and we cannot carry on as in the

past. It is extraordinary that the need for advice is being so

underestimated and undervalued.

Those of us who deal day to day with real people and conduct workplace

meetings and individual consultations are amazed at what has appeared to be

a grudging and late acceptance of the possibility that some clients will

not work through decision trees but will seek one on one reassurance from

an adviser. Even those clients who read the decision trees may have good

cause to seek advice.

All IFAs know there will always be some employees who have existing or

past pension arrangements they want to discuss and take into account. But

how is our time, expertise and the “advice risk” to be paid for? In most

cases, it will not be met from the reduced commission payable and it can

only be covered by payment of a separate fee.

Alternatively, many IFAs will simply decline to provide this service on

stakeholder. IFAs&#39 unique feature is that they provide independent advice

and they surely will not engage in competition on costs only.

I suspect most IFAs will want to continue to provide the service they are

used to providing – but only if a fee agreement is reached.

It is ironic that the very market stakeholder is aimed at is not used to

paying fees. Agreements will mostly need to be with employers rather than


IFAs will be perfectly entitled to provide clients with a breakdown of the

costs of running a stakeholder scheme, including their fees, and show a

comparison with other pension arrangements.

IFAs will learn from this development. Confidence in asking for fees,

experience in gauging cost and in operating time-recording systems will

result in more fee work being undertaken. My own experience has taught me

that the many years I have offered clients the choice of commission or

fee-based advice has generally worked against me.

Most choose the commission basis. This means advice will be free if

implementation, for whatever reason, does not take place but, most

importantly, for those of us who maintain clients over many years,

servicing and post-sale work cannot always be paid for from the original


The commission system, it seems to me, forces one to eat into new

commission to service old business.

I believe we have to move to a situation where commission is not an

alternative to fees but a way of paying some or all of the fees. We have to

charge all our time and if we have not kept a timesheet of daily activity

we will be amazed at how time adds up.

So what did I mean about the advice risk? If advice is questioned in the

future, reviewing cases is time-consuming. Part of the expense is the cost

of non-production.

Whatever commission has been paid, the IFA pays office and regulatory

costs, including professional indemnity insurance and Investors&#39

Compensation Scheme levies.

Becoming an IFA with its awesome responsibilities is not to be taken

lightly. For this reason, IFAs will not give advice on stakeholder for a sma

ll amount of commission while taking on a potential liability of thousands

of pounds for each client through their PI insurance policy excess. Fees

will be a necessity.

The provision of a service by direct invitation with no advice may be an

appropriate alternative but then we will be into competition by price only.

If we have not thought about future strategy in our own firms, there is no

time like the present.


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