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Which? piles pressure on Govt over consultancy charging


Which? has piled pressure on the Government to take action over consultancy charging after a mystery shopping exercise revealed insurers are willing to accept fees of up to £450 per member for the first year.

Consultancy charging is a concept devised by the FSA to allow advisers to charge employees’ pension pots for advice given to the employer.

In June, the FSA published guidance saying it will not allow a consultancy charge to reduce the value of a member’s pension contribution below the auto-enrolment minimum of 8 per cent.

The future of consultancy charging for automatic enrolment was thrown into doubt in November when pensions minister Steve Webb wrote to the Association of British Insurers saying the DWP was launching an “urgent review” into the charging method and is considering banning it altogether.

The DWP will make a final decision in the spring.

Which? conducted a mystery shopping exercise in January during which it posed as a consultant and approached five insurance companies to set up a pension scheme for an employer. Which? asked each insurer whether a certain level of consultancy charge was acceptable.

One provider did not object to a fee agreement of £400 from each scheme member, spread over the first year, and ongoing charges of £5 per member.

Another was willing to accept a consultancy charge of £450 per member, plus 7.5 per cent contribution charge for the first five years.

Which? says only one insurer it spoke to mentioned the FSA guidance on minimum contributions.

An Association of British Insurers spokeswoman says: “Consultancy charging needs to provide a tangible benefit to scheme members and we are in discussions with our members about this. We have informed the minister that we will respond with our assessment shortly.”

Rowley Turton director Scott Gallacher says: “Charging £450 per member would be obscene and this clearly raises questions about the protections that are in place to stop people levying huge fees.”


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Lets get things into prospective for a moment before we go off on one over consultancy charging. Firts of all take th example of £450. If the member is on average UK salary of £26000 salary and 8% contribution that is £2080 per year into pension. £450 represents less than 22% of first year’s contributions. That is not bad at all. Why would anyone think that is obscene? Consider what needs to be done to 1- help employer comply with all the rules on setting up a compliant scheme, 2- Cover the costs of research (including NEST) to establish a suitable scheme, 3 – implement the pension, 4- Cover ALL costs of regulatory compliance and responsibilities, 5 – Carry a lifetime of liability for the advice given to both employer and employees and 6 try to make a profit to stay in business. What do these parasites at Which? expect from advisers? Work for nothing? My second point is that the CC has nothing to do with the employess – it is a business agreement between the adviser and the employer, it certainly has nothing to do with any consumer group. Last point I would make is that AE is a legal requirement and as such has huge financial employer penalties for non compliance. The £450 per member is a small price to pay compared to what happens if the employer does not have a scheme in place on time which complies with all the AE duites. I really wish these morons would focus their attentions on all the facts and the consequences butthen that hardly makes for eye catching headlines. I wonder if they will provide abalanced view to incolude what it costs to set up and comply? I doubt that very much

  2. I am not involved in this business but wonder why a fee of £450 would be described as “obscene”. Is it not a proper reflection of the costs involved in setting up a group pension scheme? Obviously taking account of all the non direct costs ie just being in the position to do it in the first place. It would be interesting to know what is a reasonable charge?

  3. By scrapping consultancy charges (which they will do if it takes contributions below the minimum) they are definitely placing a greater financial burden on employers and in my opinion risking the success of the whole project. I have had the pleasure of setting up a NEST scheme and they certainly won’t be able to cope from an IT or a telephone support perspective.

  4. I assume this is the same “Which” whose best buy tables in the past recommended people take out an Equitable Life Pension because Equitable didn’t pay commission to money grabbing advisers.

    People who followed this advice from Which lost a damn sight more from their pension policies than a couple of hundred quid adviser fee.

    Which should stick to comparing washing machines

  5. Perhaps you are all looking at this from the wrong perspective.

    1. In the vast majority of cases people are shoehorned into a one size fits all plan.
    2. Individual advice is scant to non-existent
    3. Asset allocation is a joke
    4. It is not only a case of £450, but that is multiplied many times. If only 20 members that’s £9,000. Is there that amount of work involved? Much of it is done by the life office – and most of them involved in GPPs are pretty second rate anyway as far as fund performance is concerned.
    5. Taking Marty’s figure – he may think that 22% swiped our in the first year is a mere bagatelle, but if this was carried across to (say) an ISA it would mean a reduction of £2,482. How much would these people charge for an individual PP?
    6. What about the on-going fees (if any)?
    7. Quite simply it is the employer that puts in the scheme. Invariably it is they who receive the advice and not the member. The member is not consulted about the level of charges – outrageous as it is in fact their money. Therefore the employer should pay. Auto enrolment is compulsory therefore they don’t really have a choice.
    8. It may well be that a Group scheme is not the best option. AE may not be appropriate. In that case who would the adviser charge for advising to opt out or do nothing?

    Which? on this occasion is right on the money and I hope they succeed.

  6. Eliot Flack-Hill 28th March 2013 at 11:40 am

    I understand that Pensions generally, and Consultancy Charges in particular, are complex, but I would have expected ‘Which’ to display a better understanding of the issues.

    The whole point of the RDR regs is to remove the influence of Providers over the charging structures, which are to be agreed between employers and advisers – Providers merely facilitate these agreements.

    So an exercise in which Providers are asked what charging structures are allowed is inherently flawed – as they have to be able to demonstrate the flexibility that the regs require.

    A more useful exercise would have been to ask Advisers what charging structures they are ACTUALLY going to need to pay for the services they provide. But I guess that probably wouldn’t have generated such good headlines.

    We need to be encouraging take-up in pensions, particularly corporate pensions which, post-AE are a no-brainer. Scaremongering will only drive people away, to their own detriment.

  7. Harry dont be mislead to think that all GPP ‘advice’ is at arms length with the employer only getting to see the Adviser. In my experience the EBC firms may work this way but there are also many very efficient IFA practices that provide the full blown 121 advice to members, showing the same care and attention that they would provide to an individual client and dare I say charge considerably more than £450 for the pleasure. Yet it is the poor practices that tarnish our profession, the good guys do the right thing and £450 is generally exceptional value for money.

  8. I’ve just read a car brochure and apparently this particular vehicle is capable of being driven at more than 50mph over the speed limit. It’s obscene. Really? I can go to John Lewis and buy a knife. I could kill someone with it. It’s obscene. Blah, blah.

    The products are just tools. It’s not surprising or news that a tool can be misused. The question should be “is it being misused?”.

    Which? would do just as well to complain about pharmacists handling drugs or soldiers carrying guns.

    Laws and rules do not stop bad behaviour. Robust and reasonable enforcement of those laws and rules can. Even that only works when the actors are clear on what the laws and rules mean…

  9. @Big Shay

    I do concede the point – unfortunately I see too many examples of the poor practice from so called Benefit Consultants. (Whose benefit? Theirs no doubt!) I shouldn’t really complain as I have clients who are willing to pay a fee for a full explanation, advice, analysis and guidance on fund choice and asset allocation.

  10. @ Harry K. Harry you use the ISA example in a very disingenous way. You are assuming 22% on a maxt out isa allowance lump sum. If however they were doing the ISA monthly at teh same contribution level it would still be the same. We all have costs to cover and profit to make. I dont know about you, but I have implemented 5 GPP’s and everyone of the members got individual advice around the plan, fund choice, attitude to risk reports. I charged £500 per member and the one scheme that sticks out had 25 members. I had 75 meetings in total (excluiding employer meetings) in connection with this scheme so the £12500 when is divided up that works out at £166.67 per meeting per member. That is not a huge rate. Please do not think for one moment that Which? is right on this one. They are not and as Anon @ 10.54 points outs out, what about all the poor sods Which? “Recommended” Equitable Life Pension to. They are as guilty as sin, but as they carry no responsibility they just change the subject and look for another story.

  11. I wonder why “Which” don’t show by example in the same way as their mortgage advice initiative?
    There in always the MAS which gives “free” advice according to their Web site and adverts.
    Dammed if you do and dammed if you don’t. Every one wants IFA’s to be like Accountants and Solicitors but don’t seem to like the reality when it comes to cost

  12. I think that charging the members for the employers costs of running a AE scheme should be scrutinised as this is essentially commission in all but name.

    This is very different to members being charged for advice they may chose to take where personal advice is sought……

  13. @Harry Katz. Harry it is very obvious to the readers that you and Which? don’t a clue when it comes to the group pensions market, how we work, or the services we provide at employer and employee level. Do you really think we just ask the member of staff to return their application form with a tick by either low risk managed, medium risk managed, or adventurous risk managed?

    Which? is not correct and you should be ashamed that you think so poorly of the IFA’s advising in the group pensions arena.

    You carry on attempting to predict the correct asset allocation for your clients and we’ll provide the face to face advice to those people who can only get access to an IFA at their place of work.

  14. Scott Gallacher 28th March 2013 at 5:51 pm

    Marty might want to recalculate his figures based on band earnings when you end up with a 27.5% charge not 22%.

    Also should you assume a lower salary member on £16,000 the charge is 54%, also assume that member changes jobs every 4 years then the charge is roughly equivalent to 13% per annum.

    P.S. I resent being called a moron by someone not understanding ‘band earnings’ and not willing give their full name.

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