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Robert Reid: Govt can’t turn back the clock on exit charges

ReidRob

I was never crazy about Doctor Who. The concept of time travel does not sit well with me as I believe in moving forward and not being too fixated on looking back.

Many in our sector have complained about the lack of a long-stop. Even more complain with the use of hindsight, something the regulator regularly denies them. Having poor records is reckless and unprofessional, so being unable to justify suitability because nothing was documented will always be problematic, whether the regulator indulges in time travel or not.

The latest bit of time shift comes from  the Treasury with its paper on exit charges. The consultation has arisen due to people facing charges for exercising pension freedoms. I am interested to know why it is only aimed at pensions when, if exit charges are indeed unfair, the review surely needs to be of all things financial?

But my main problem with the consultation is the idea that all contracts need to be reworked. If that is the case, why not amend charges from inception? Or is that unfair? When these plans were designed, full liquidation of funds was not on the cards. As such, I can forgive the architects for spreading charges over time, protecting themselves with an exit penalty.

What this takes us to is a far more explicit style of charging, which, of course, is no bad thing. And it does not need to be confused with becoming lower cost: we in the industry recognise there are costs in all transactions.

The public, however, still needs more education on the cost of running a regulated business and the inability we have to tie clients to enforceable contracts. I mention the latter as I recently dealt with a legal firm looking to value an IFA’s business following his divorce.

They asked for a valuation of the client contracts, and this ignorance towards how we work made me realise we have a long way to go in communicating the imbalance that has been created in the adviser/client relationship, as well as the value we deliver. The whole concept of treating customers fairly should be a two-way pledge but to achieve that we would need the public to be far more aware of regulation.

Anyway, back to the consultation. The focus on charges to the exclusion of all else highlights the fact politicians are seeking a quick fix to a short-term problem. It is becoming clearer to me that pensions freedom had more to do with releasing cash to voters than genuinely helping people to make better financial decisions.

Magic Boomerang was a TV show in the 1960s where throwing the boomerang allowed time to stand still. Not time travel as such, but more of a pause switch. Fixing the terms of engagement for a period makes more sense than the benefit of hindsight, where, frankly, anyone can make themselves look clever.

Given the debacle post-pension freedoms it is clear the Tardis may be fired up soon. Pity the plans were not fine-tuned with a sonic screwdriver first. Sometimes those who make the most important changes think only tactically when they really need to be thinking strategically instead.

Robert Reid is a director of The Ideas Lab

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Comments

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

  1. Another well thought out and written article – keep them coming and send some to the powers that be!

  2. Not only that, but UFPLS also had emergency tax deducted. By the time HMRC refunded any excess, the election was over. Neat.

  3. Perhaps the providers have done themselves a disservice by calling them exit charges when in fact they’re an arguably legitimate recovery of charges outstanding for the remainder of the contract’s written life.

    If a contract’s early vesting charges are stated explicitly in its documentation, their fairness or otherwise is very much more difficult to argue against than some woolly term such as “an actuarial calculation” that affords the provider carte blanche to impose whatever terms it may feel like on the day. Attacking the abuse of such woolly clauses should, in my view, be at the top of any review agenda and providers would find it very much more difficult to argue against the imposition of an explicit, fair and reasonable scale of early vesting charges.

    Without a properly thought through agenda for such a review, the Treasury (notably not the FCA any more) may find it difficult to impose any changes of practice. The providers might simply say No ~ what are you going to do about it?

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