The Government’s decision to ban consultancy charging was, at best, marginal. When I interviewed Steve Webb on the back of the announcement last month, the only hard evidence he quoted was a piece of research from Which? suggesting providers were willing to facilitate consultancy charges of up to £450 per member for the first year.
The reality is consultancy charging was, in the DWP’s eyes, guilty until proven innocent and the industry was always going to find it difficult to prove advice provided to employers resulted in a “tangible benefit” for employees.
For the DWP to offer the industry clarity on consultancy charging eight months after automatic enrolment had started was lamentable and left the best laid plans of many advisers and providers in disarray.
But to my mind, the intention of the Government’s announcement was crystal clear – we do not want consultancy charging to be a feature of auto-enrolment. Most of the industry got this.
Scottish Life, however, didn’t and published a press release last week with the headline, ‘Scottish Life supports advisers & employers with transition to fee-based model’.
The announcement said Scottish Life had decided:
- to continue to offer CC for schemes which are in the pre-AE phase;
- to monitor the use of CC to help ensure that good member outcomes can be delivered;
- to keep in contact with DWP, and any other relevant bodies, to help ensure that the approach taken is fully compliant with the planned legislation.
I was stunned. In none of the conversations I had with the DWP did I get the impression this was the Government’s intention.
In fact, I spoke to the DWP on the day the consultancy charging ban was announced to find out whether it would be retrospective. Here is its response:
“… given the intention to ban, announced today, and the constructive engagement we have had from the pensions industry over the past months, we would not expect providers to initiate new sales of business including consultancy charges from this point.”
This isn’t even a loophole – it is simply a gap in the announcement which was obviously going to be addressed when the legislation was written. Could the DWP have spelled it out more clearly? Possibly, but then the common sense departments across the rest of the industry seemed to grasp what was going on.
The result was an embarrassing and entirely avoidable rebuke for Scottish Life from pensions minister Steve Webb.
Webb said: “We announced the ban on consultancy charging and a provider says ‘stuff you, until it’s absolutely illegal not only will I carry on with pipeline business, I will write new business as well’.
“Any provider thinking they should carry on business as usual [with consultancy charging] should think again.”
Scottish Life, at the moment at least, is standing by its decision and insists it has been made with advisers’ best interests at heart. But it should remember that Webb decides the rules and, inevitably, will force any consultancy charging arrangements agreed after the ban was announced to be unwound.
That will be a messy business and will drag the industry into further disrepute. As Scottish Widows’ chief executive Toby Strauss said: “It’s time to move on.”