I have always believed that when a piece of regulation is proposed, the best opposition in questioning the practicality is by proposing a workable alternative, that is, giving people an honourable method of retreat.
The suggestions in the last paper on the retail distribution review with regard to group personal pensions were less than practical and brought into question the quality of some of the submissions that had been made on this particular topic, perhaps indicating that the bulk of responses were from providers, not advisers.
In essence, the FSA’s paper made the point that they did not want individuals bearing disproportionate costs to their plans when a scheme was being set up. Now, where 100 per cent of the membership joined, this problem does not arise but where the joining level is less than 100 per cent, we could have a major issue.
For example, if a scheme is being set up and all the individuals eligible to join attend the seminars and presentations which are available, with some of them taking advantage of one-to-one meetings, this all adds to cost. If the intention is to use consultancy charging as a way of recovering the charges, then the issue that pops up is, who is going to cover the cost of the non-joiners?
It may well be that the regulator has decided that all this will take effect at the same time that Nest comes into force with its auto-enrolment but that does not necessarily work. Given that individuals have still got the right to opt out, you could still find that joiners are bearing all the costs. There is the direct suggestion that it would not be possible to operate on an annual management charge basis with, for example, 1 per cent charged on every account as those in the bigger accounts would effectively be subsidising those with smaller funds.
If costs were applied on a per capita basis, then, in some cases, employees could find their contributions wiped out by their share of set-up costs.
I think it is inevitable that the employers will have to bear the costs of set-up or adjust their contribution rates. Some individuals reading this may find my comments unhelpful but let me make myself clear. I don’t seek to act as a barrier, I seek to act as a catalyst to a detailed discussion.
Consultancy charging is a good idea in principal but we need a beta version to make sure that it works in practice. The submission that we (The
Ideas Lab) will be making to the FSA will be along those lines and will hopefully have them recognise that it is necessary to explain matters,
not just to those in the industry but those directly affected by it.
It is very unhelpful that the FSA has done nothing at all to explain to the general public that commission will end in 2012.
They may refer us to their research but we should respond with the rebuttal that the quality of research delivered in the last RDR document would not have gained a pass at GCSE.
Quality work is needed from all – the regulators are not excluded, nor are their sub-contractors.
Robert Reid is managing director of Syndaxi Chartered Financial Planners