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The adviser charging questions that need to be answered

I read with interest that the current England manager believes 100 words of English is sufficient to make himself understood. What that says about footballers, I am not so sure.

As the end of the tax year passes, we now only have 20 months to go before the retail distribution review takes effect – yet you would never know it.

Many remain in a state of denial, fuelled in part by the lack of detail on how various elements will work in practice.

For example, the concept of an extension to the deadline for achieving QCF level four has been promoted by the Financial Services Skills Council, among others.

The reaction from the FSA has been as expected, in that plenty of notice has been given ahead of the deadline. That is why I have always stressed that time is the most precious commodity during periods of change.

Adviser-charging lacks real definition and begs some key questions.

  • If an adviser charge is predominantly advice and not intermediation, then surely VAT is due?
  • If a client cools off, what is returned to them? The original investment or the investment net of the adviser charge?
  • If a plan is set up on one charging level, a flat 1 per cent, for example, can the next intermediary alter that to a lesser charge, maybe 0.75 per cent, or could they increase it to 1.5 per cent?

No provider has yet been able to answer my first point, they have not really considered the second point and the third is a systems’ nightmare.

It is as if Fabio Capello is writing the conduct of business sourcebook – perhaps that is the reason for the delay. This issue extends to consultancy charging, where the joint working party is likely to deliver a fair but unpopular definition of what is fair and what is not.

Like the 100-word limit, trying to deliver consultancy charging that is not unfair to the scheme member, without asking the employer to pay a realistic set-up fee, is impossible. The habit of many executive benefit consultants taking ongoing remuneration where there is no ongoing service is provided will not be tenable. Where this leaves these firms is anyone’s guess but they may decide to quit that part of the market. Given the service many of them deliver, that is no bad thing.

It is all very well sticking to deadlines but that requires the regulator to be fair and to deliver the rules in good time. At this rate, I can see some providers unable either to provide adviser- charging or, just as bad, unable to deli – ver in the required format. The ongoing debate is now considering the impact of paying adviser-charging from bonds and pensions. With bonds, does ongoing charging form part of the 5 per cent annual allowance? For pensions, would it be a unauthorised withdrawal? This would seem to reflect a lack of joined-up thinking between the FSA and the Treasury.

One hundred words look pretty puny when you consider the average three-year-old has 3,000 words at their recall.

I think what this proves is that Mr Capello knows a lot about football but precious little about people and how to communicate to them.

If you do not agree, ask Rio Ferdinand.

Robert Reid is managing director of Syndaxi Chartered Financial Planners


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. What is the contrbution made to a pension for tax relief purposes – the £100k or the £97k after the deduction of the adviser £3,000 charge? Is the advsier charge client money?

  2. Alistair Paterson 11th April 2011 at 4:43 pm

    Three words, not 100. Completely right, Robert

  3. Good observations on English Football. I’ll make no comment on the Scottish variety !
    Good observation also on the challenges to provider systems with multiple tranches of charging.
    Do we yet know what we’ll want ? The flexibility to add or subtract charge on just incremental new business or on both new and existing and presumably if the latter then also the flexibility to have either or.
    As a one time product development manager i can confirm that the systems conundrums are not simple but industry wide clarification on the requirements would help.

  4. Neil F Liversidge 11th April 2011 at 5:02 pm

    A superb analysis Rob, in just 237 words. Can’t you persuade the FSA to hire you to rewrite its rule book?

  5. “The habit of many executive benefit consultants taking ongoing remuneration where there is no ongoing service is provided will not be tenable.”

    I don’t see a problem with taking remuneration in a year when you do no work, but only on the basis that the continuing work over a period of time is remunerated by the commission/fees over that period. This is what renewal commission is for; you make in some years, yet in others you give the service at less than cost. The consumer has got used to and liked this: I don’t see the consumer taking to paying little or nothing in one year and getting (say) a £500 bill in another.

    Of course I’ve lost the battle on this argument as far as the FSA is concerned, but it is the consumer who will have the last word and I don’t think he/she will be interested in the FSA’s view.

  6. Who changed the photo? They other one had him smiling like a… er… Cheshire cat.

  7. This article shows exactly why the RDR needs to go back to the drawing board. Despite many positives the idea is half-baked and no-one really knows what is required.

    Gap-fill requirements have been changed again in the past month – tough luck if you wasted your time studying stuff that has since been removed.

    The whole thing is a shambles and the FSA needs to delay the implementation by 3-5 years AFTER they have decided exactly what their rules really mean.

    That helps the grandfathering issue, it allows providers time to write and implement systems (not something that can be done instantly) and it gives the public time to understand what is going on before they have affordable advice removed from them.

  8. An excellent article – no ranting and raving, just sensible, constructive, thought provoking comment and questions.

    Let’s hope the powers that be are one step ahead and have already considered these issues.

  9. @ Tom Scott

    Absolutely spot on, Tom.

    What a reflection all this is on the autocratic powers of the FSA! One only hopes to goodness that Parliament sees fit to make sure the successor FCA is properly accountable.

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