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Stakeholder could involve a substantial transfer of funds from shareholders or with-profits policyholders to IFAs

I wrote a piece in this newspaper soon after the publication of the stakeholder Green Paper. I could not see much initial commission being payable on a product that had a single charge of 1 per cent of the fund each year.

I was wrong. The way things are going, IFAs do not have to survive stakeholder – they just have to fill their boots. Hands up those life offices that have parted company with initial commission in the region of £0.5m, with 12-month earning periods, and a single charge of 1 per cent of the fund, for prospective annual contributions of £2.5m or even less.

If you are a provider, you will take a long time to make any money. I think that view is optimistic.

With no exit penalties, it seems safe to assume that persistency will be no better – and might be a lot worse – than current personal and group personal pension experience.

Consider the individual client who pays £100 a month to Provider A. If the commission war goes on, the IFA gets, say, £400 with a 12-month earning period. A year later, Provider A gets a tenner and some loose change. The IFA is encouraged to transfer the fund to a single-contribution personal pension with Provider B at a charge well below 1 per cent and to start a new stakeholder with Provider C. Will it happen? I don&#39t know but it will not be difficult to demonstrate that it is in the client&#39s best interests to select against the providers.

So, providers may have to choose between losing the business on which they have made a loss, cutting the price in the hope that even finer margins will eventually produce a profit or betting that they will turn out to be winners in the ensuing money-go-round.

Along the way, there is what appears to be a substantial transfer of funds from shareholders and/or with-profits policyholders to IFAs.

There are also real dangers for personal pension customers who may be persuaded to make their current plans paid up or to transfer funds into a new stakeholder, then continue with regular contributions into the stakeholder.

They could lose with-profits guarantees, pension term insurance, waiver cover, investment choice and flexibility. They could very easily move their funds from a relatively low-charge environment to a relatively high-charge stakeholder environment. It all depends on the product, how long they have held it and how long they plan to work and contribute before drawing benefits.

While some people may be well advised to move, for many others it will be plain bad advice. I hope I am not around to be angry when the ICS bills start to arrive.

In the meantime, financial advice – the genuine article – is thankfully a growing business.

Does the better-off client really want a plain vanilla product that involves the higher-level contributor in significant cross-subsidy to lower-level contributors? Does he or she want to take an interest in who is doing what with their money? Does he or she want the facility to change the investment strategy at appropriate stages without the chore of new forms, new policies and all the paraphernalia that goes with both? No, yes and yes. Hence, the growth in self-invested personal pension business.

Advisers with clients who have small self-administered schemes have new opportunities, thanks to Update 69, to review and refresh the arrangements. New transfer regulations will demand yet more client contact and review. There is a tidal wave of maturing pension money that has to be managed as the owners configure the totality of their assets for their retirement or semi-retirement.

The future is bright. The future is wealth management. This time, I hope I&#39m right.

Graeme Laws is deputy managing director at National Mutual

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