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Rotten carrots

In the US, a great discussion revolves around the age-old debate of fees v commission. In my own firm, the ratio of fees to commission has changed substantially over the last few years to the point where some fees have no potential to lead to the sale of an insured or collective investment. As a result, we will soon need to set up a separate company for that revenue, if only to keep the VAT return simple.

As the problem with final-salary schemes continues, we now see that the pension and corporate lawyers are recommending the use of bribes to encourage people to exit the scheme. This rerun of pension misselling has the potential to land at our door but only if we act without thinking.

This is one bit of planning where the number-crunching can be done very easily, if it is needed at all. There is no doubt that if a member is offered a bribe and/or enhanced transfer value to leave a scheme, then he or she is getting the poor end of the deal.

Can I therefore appeal to the employers out there thinking about this strategy to save the legal and actuarial fees and use that money to reduce the pension deficit.

In the Sunday papers, personal finance journalist Theresa Hunter made the point that there is a similarity between this and Noel Edmonds’ TV show, Deal Or No Deal?

Let us not forget that the lawyers are acting for the employer and so have no duty of care to the member. This clever use of the law of agency does these legal firms no credit. In short, it stinks.

If you have deficits, secure the accrued pensions and wind up the scheme. After all, if your company had a deal with a supplier and it defaulted, you would insist that it honoured the deal.

How many times did the company cite the final-salary scheme as the reason to restrict pay rises? Employers cannot have it both ways.

I believe that the lack of backbone shown by Alan Johnson in dealing with the public service unions has made many in the private sector determined to cut their own deal at minimum cost. Indeed, Johnson’s indecision on challenging Gordon Brown underlines his lack of decisiveness.

This Government knows that the public sector pension deal cannot last but in the best actuarial traditions just keeps pushing it away. Well, I have news. The reaction to this in due course will make the poll tax kickback look like a walk in the park.

There simply is not the margin in pay between the public and private sector to justify the lack of action on defined-benefit schemes in the public sector.

IFAs must resist the option of providing advice on these bribes or, worse still, help them in transferring their benefits. We should be sending them back to their HR departments with the difficult questions that we know they can pose.

The FSA can help by looking at whether in constructing the offer to leave, including the bribe, this constitutes advice and is therefore a regulated activity.

If it can make that stand up, then it should go after the culprits of this odious activity.

But back to fees vs commission. All that matters is transparency, as some legal firms found out some years ago when they were caught overcharging corporate clients.

That reminds me of St Peter on greeting a newly deceased corporate lawyer. He asks: “Where have you been? We expected you four to five years ago.” The lawyer asks why. “Well, based on the hours you have charged your clients…”


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