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John Greenwood: Out-of-touch regulators make a mess of consultancy charging

At least the Department for Work and Pensions didn’t wait until New Year’s Eve to pull the rug from under those advisers looking to operate consultancy charging next year. But that is probably the only consolation available to anyone who has spent time and money getting their business ready for the rules the FSA told them to prepare for.

I have no problem with the DWP’s motives for intervening in consultancy charging. Everybody knows it is a flawed proposition. But like pretty much everyone else who has had anything to do with consultancy charging, I find it incredible just how late they have left it.

The DWP should have had a position on consultancy charging years ago. Yet it has remained behind the curve throughout the whole process. Now it has left it so late to intervene that a lot of hard work will have been done for nothing.

Pensions professionals are already taking bets on when the whole auto-enrolment roll-out process grinds to a halt. Some are saying as early as next summer, when everyone goes on holiday. I have heard others predict the first or second quarters of 2014, when the numbers of employers hitting their staging dates grows exponentially. The Pension Regulator says employers should start preparing a year in advance, which by my reckoning is a few weeks from now.

Like the mops carrying buckets for Mickey Mouse’s Sorcerer’s Apprentice, auto-enrolment will spew out ever more employers in search of pensions advice. But who will be there to service them?

I agree that automatically enrolling people into schemes with high consultancy charges is not a good idea. But we should have been looking at working out a better solution literally years ago because there will have to be some sort of solution if auto-enrolment is not to be a complete disaster.

Pensions minister Steve Webb’s letter to ABI director general Otto Thoresen reveals just how far behind the DWP is on this story. Five weeks before the consultancy charging rules take effect it is having to ask the ABI for detailed information about how charges are set to be deducted – because it does not know itself.

The DWP has been off the pace on the RDR since day one. It is nearly three years ago that I was in what I thought was the august presence of the DWP’s head of personal accounts, as it was then called. When I asked how he thought the RDR might impact distribution of pensions, his answer was, and I kid you not, ‘what’s the RDR?’.

As recently as May this year a DWP spokesperson confirmed on the record that a consultancy charge of 100 per cent of an employee’s first year’s contributions would be acceptable. I only asked the question to show up the flaws in the system. I did not think their grasp of what had been dreamed up by those down the Thames at Canary Wharf would be quite so basic.

And the FSA’s role in this is probably worse. It created consultancy charging but now it says it doesn’t want it for ‘auto-enrolment schemes’. It says this as though there is some special breed of group pension out there that is not an auto-enrolment scheme that this wonderful consultancy charging creation can go and be used on. They are all auto-enrolment schemes now. So why did it ever think consultancy charging would work?

With hindsight maybe the best plan for the government would have been to leave group pensions out of scope of the RDR until auto-enrolment is implemented and use its charge-capping powers to protect consumers.

Providers must already be thinking that maybe getting rid of consultancy charging could lead to the unraveling of legacy commission. I have not seen any howls of complaint from providers at Webb’s intervention. If that happens, the Government would surely want to see consumers getting the benefit and not providers.

I have no crystal ball to read the future. But I do know that properly addressing this problem should by now be firmly in the past.

John Greenwood is editor of Corporate Adviser


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

  1. FSA is to busy at the moment planning their Christmas party!

  2. Its like everything else the FSA does. Ill thought out, desperately badly planned and incredibly stupid to implement. I have finally figured out the FSA stands for something I cannot put in print. It is so apparent they havent got a clue about most things they are trying to regulate. The only thing I think the FSA are competent at is fighting financial crime. Note I said competent not good at.

  3. Any organisation or adviser who has spent money should be compensated and every 1p returned.This is what accountability is all about.

    If this means it comes out their funding of their FSA gilt edged pension scheme so be it
    – let them feel some pain. Why should others pension funding suffer because these funds have been wasted by the FSA and are no longer available.

    If there was a mechanism for compensation and for accountability, would the FSA’s incompetent non expert meddling lead them into policy making on areas they know nothing about? Wasting and ruining other financial services organisations who spend vast sums of money and time for no purpose whatsover is once again criminal act tantamount to the FSA stealing others capital to finance inept and dead end FSA policy making. The FSA must fit the bill for their own incompetence – and certainly not by raising funds from the inflicted’s closed shop member fees. If the FSA dont have the funds, financial firms must be able to sue the Treasury and should not be prevented from taking legal action to recover lost money. In fact the FSA would be wise to ensure it has professional indemnity insurance – ironically its continual negligence means it would be practically uninsurable. Eventually the message to the FSA will understand what acting utra vires means – dont get involved in any decison making process you are not authorised or equipped to do so. FSA should not create policy it should ensure others who are democtratically respresentative experts make decisions – it is then their job to police those regulations. Add to this other FSA failure and a decade of waste, regulation fundamentals must change.

    The FSA juggernaut rolls on, not only asleep at the wheel, but not bothered who it kills or injures or maims, why should it, its not accountable to anyone. As long as its on the road no one is safe, but its couldnt care less attitude means that even if it goes down the motorway the wrong way, injured or estates of dead victims have no way to seek justice or make the purpitrater accountable.

    PS How long has Hector Sants been nodding and winking to Barclays and RBS to set up his next job – these appointments should be illlegal for obvious reasons – FSA likes to regulate on fairness ethics and integrity yet cant even apply these to its own internal house – all praise to the Masterful Leviathon then, its business as usual.

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