The regulator has extended the proposed ban on commission to GPP products and sales, irrespective of whether advice is given to individuals or sales are made without advice and rejected factoring, suggesting allowing it would infringe competition law.
In today’s RDR paper, the FSA states: “We are now making detailed proposals for applying to the GPP market what we propose to call ‘consultancy charging’, in place of the phrase ‘arranger charging’ that was used in CP09/18.
“Under our proposals for consultancy charging, all firms that assist employers with the setting up or administration of GPPs must agree their own charges with the employer in question, rather than being paid by commission set by the pension provider.”
Unlike the proposals for adviser charging related to other investments outlined in CP09/18, consultancy charging will apply regardless of whether the end investor, the employee, receives advice, as the FSA says it is focusing on the service to the employer.
It says this proposal will bring to an end the current commission-based system of adviser and employee benefit consultant remuneration in the GPP market.
The FSA says: “This would work in a similar way to adviser charging, but would involve the employer not its employees.
“Where an employer is unable or unwilling to pay fees direct to an adviser, the employer and its adviser would negotiate and agree the cost of the adviser’s services as well as agree how these would be paid from employees’ GPP funds, including the amounts and payment periods.
“The adviser’s services could include advice to the employer on choosing a scheme provider, assistance in processing scheme actions, such as salary deductions or distributing key features and other documents to employees, as well as advice to employees, for example, about investment fund choices or contribution levels.
“Where an employee does not take up an offer of pre-arranged advice, no advice charge would be made.”
The new rules will not apply to existing GPP schemes or new members.
The FSA has also rejected factoring on group pensions. It states: “We see a danger that factoring of consultancy charges could become a basis of competition among scheme providers, in place of competition based on commission.
“We have considered allowing factoring and setting standards for factoring terms, either through our own rules or through the encouragement of an industry code of practice, but have rejected this because we think it is likely to infringe competition law.
“So, we propose to extend to GPPs the ban on factoring already proposed within CP09/18 for individual pensions business.”