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OFT commission ban could cost advisers £150m and 1,000 jobs

A ban on pre-RDR commission linked to auto-enrolment schemes could see 1,000 advisers put out of business and cost the advice sector at least £150m, according to Aviva estimates. 

The Office of Fair Trading yesterday recommended banning pension schemes with “built in” adviser commissions from being used for automatic enrolment.

New legislation banning consultancy charges in auto-enrolment schemes came into force on 14 September. The rules only applies to deals agreed from 10 May, when Webb announced his intention to ban the charging method but he was awaiting the OFT report before considering retrospective action.

The OFT has now asked the DWP to consult on preventing schemes being used for auto-enrolment that contain in-built adviser commissions or that penalise members with higher charges when they stop contributing into their pensions.

Aviva head of policy John Lawson says: “At least £150m is paid out to advisers in commission from corporate schemes. If you withdraw that sort of income, you are potentially putting about 1,000 advisers out of a job.

“Steve Webb has said he will act on the OFT’s findings and I expect him to stand by that, so it looks like this is going to happen. It is going to hurt advisers really badly and it is not clear it will reduce pension scheme prices.”

Richard Jacobs Trustee and Pension Services managing director Richard Jacobs says: “There are no excuses as it was obvious some IFAs were just selling for commission just before the RDR.

“Any advisers who sold auto-enrolment schemes on commission in the last year before the RDR who thought they could get away with it have only got themselves to blame. It was obvious this could happen so anyone doing it needs to be dragged into the real world.”

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Comments

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

  1. Is this just another nail into this scheme? Is it heading for the same fate as Stakeholder? The Regulator, the Government. The OFT et al have more heads than the Hydra. The spin concerning NEST fees, the fact that the whole thing is predicated on percentages, the fact that it is just another unwelcome tax and a huge imposition on business.

    If there is any money to be made advising SMEs it is in explaining to them how to avoid this nonsense, not to engage with it.

    Before anyone blusters, I didn’t mean that there should be no pensions, just not statutory imposed, inflexible, one size fits all, third rate products purely focused on price and not value. A pension is merely an investment with a few knobs added. Therefore it is important to ensure that the investment element is as good as it can be and suitable for the person who is paying into it. Patently what AE is not designed to do.

  2. Can’t help thinking it would have been better to have sorted this out before Auto-Enrolment got going…

  3. More of the same from Steve Webb and to be frank it is getting boring, instead of always coming up with the same sound bite that reads well in the press, maybe he would like to actually come up with something that is constructive. I’ve not heard one comment or sound bite that gives financial advisers anything constructive to work on. Last time I checked financial advising practices were not charities and it would be useful to know what the regulator believes to be an effective fairway of charging for our services instead of hearing the continual catchy sound bites that get his name in the press. O I forgot that’s too much to ask from a politician.
    If there was any other industry that have just lost 10,000 advisers and 20,000 support staff in the last four years there would be outcry. Unfortunately financial services seem to be one of those industries where the general public do not care until really starts to affect their own individual lives. What the regulator is effectively building up is a time bomb of ill-prepared generations for retirement and an indebted society who received no real advice on how to reduce liabilities and increase lifetime savings.

    The two people to blame for this mess is Steve Webb and Hector Sants, their names will be forgotten but their legacies will not.

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