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Jamie Clark: Why the FSA should rethink consultancy charging

Jamie Clark MM blog

Two big challenges for 2013 are the RDR and auto-enrolment, but it is comforting that the pensions industry and its advisers seem ready to meet any problems that crop up.

However, even now there are some major issues still to be addressed.

Take consultancy charging. In June 2012 the FSA announ­ced “a consultancy charge is not permitted to reduce the effective contributions to an automatic enrolment scheme below the minimum amounts”.

This was a surprise but not seen as a problem as the DWP’s legislation allows charges to be taken from auto-enrolmentschemes in this way. We under­stand the FSA wants this to apply to all auto-enrol schemes, regardless of legislation.

While this does not mean consultancy charging cannot be taken from auto-enrolment schemes, it could mean advisers will have to think about how they are paid more carefully. For example, will they ask the employer to pay a higher contribution to cover the cost of advice, or charge an explicit fee? If not, can contributions be continually monitored to make sure that the cost of advice does not reduce contributions below the minimum level?

The bigger question might be more basic: will employers be willing to pay an explicit fee, or pay more than the legislation requires, to meet the costs of advice and other services? The danger is that employers unwilling to do so could be disenfranchised from advice. In the absence of any other option, they could end up using a direct scheme that might not be suitable for them or their employees.

Over the past few years, providers and advisers have been preparing for RDR and automatic enrolment, spending time and money changing the way they work so that they can remain profitable in a post-RDR landscape.

Employers too are getting the message and a lot of the credit for this must go to advisers. They have been busy contacting their existing clients, hosting seminars and making the most of their professional connections. The DWP’s advertising campaign has also helped, leading to an increase in enquiries and new business written in the corporate pensions market. In 2013, as thousands more employers approach their staging date, this interest will only increase.

If automatic enrolment is to be successful, advisers must be allowed to continue to play a key role in delivering the help and support, as well as the pension scheme, that best suit the needs of their clients. That is why I believe the FSA needs to think again about the practical implications of its proposed approach.

Jamie Clark is business development manager at Scottish Life


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

  1. No problem – the head of MAS said we should provide free advice to SMEs. Job done, no messy consultancy fees.


  2. Anyone who gives advice or guidance on NEST needs their head examining.

    We are not authorised under current regulations to give advice on NEST as far as I am aware, unless it is covered by general pensions advice, but giving advice on a government sponsored scheme which has for the first 10 yrs considerably overall higher charges than the maximum permitted under Stakeholder leaves advisers open to allegations of mis selling / unsuitable advice.

    My advice, leave NEST alone, the sooner it flounders and dies a death the better

    Government tinkering in the pensions industry is slowly taking control of clients own pension savings out of their hands and putting it into the hands of the providers.

    I cannot remember, does NEST allow a 25% tax free lump sum on retirement ?

    And no transfers from what will become an inadequate expensive scheme seems to put the kibosh on any sensible assessment of the schemes worth.

  3. I just wanted to be clear – is NEST covered by the FSCS? I have this feeling of doom that when NEST all goes pear-shaped (if it hasn’t already!) that this will ultimately fall back on us Financial Advisers again, despite the fact that we are already distancing ourselves from this. I know Past Performance is no guide to the future but successive governments have completely trashed pensions in this country, that alone is good enough reason not to trust any government with your pension – in fact that will be the closing line on all my pensions suitability reports – who could argue wit that!

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