It is odd that a type of charge that is only four months old, could so soon be banned and since “consultancy charging” replaced a previous system of commissions, the announcement is as step short of banning all methods of getting members to pay for the costs of their workplace scheme.
The sting in the tail is that the DWP are going to consult, following the publication of the Office of Fair Trading‘s report on the subject, into the general charges paid by members for the scheme’s they are in. This is likely to result in a charge cap. Depending on the rigour involved, this could lower the bar to levels that make it unviable for providers to continue to offer trail commission to advisers of Qualifying Workplace Schemes(QWPS). The options will be to strip out the commission to get the boat back above the plimsoll line -or start a new scheme.
In any event, expect to see a new regime which requires employers to comply with strict rules or explain to staff and regulators why the organisation’s case is special.
Nothing has been lost
The opportunity to advise has not been lost, it has changed. Pre-payment is ending (though it persists where there is still commission in the schemes), but a “payment on delivery” model is still viable.
Advisers who are prepared to sell their time at an agreed rate, can charge explicitly for expenses including preparation and documentation. A pre-agreed program that delivers to expectation is likely to be repeatable and get referrals.
This is not an easy business to build, but it is one that my firm First Actuarial, has been building since its inception in 2004. We now have 150 staff, have never taken commission and do not take fees from members (though we may charge per capita fees to the employer).
Though there is only one pot from which fees and contributions are paid for, it’s the fact that the employer is in control of what is being paid, that makes the employer funded advisory model acceptable both to employers and Government.
Advising on and managing “business as usual”
Where there is a need to help employers through staging and onwards to ensure “business as usual”. The commercial justification for paying an expert to “hand hold” is the cost to the business of getting it wrong which is usually much higher than the cost of getting it right.
This is a business risk and the cost of sorting it should not be born by members. The costs of establishing a project plan and delivering to it, of creating bespoke staff communications, managing the payroll obligations and ensuring that all interfaces between payroll, HR and the provider work is worth paying for. But it is not up to the member of the scheme to foot the bill.
Consistency going forward.
We are in danger of having two types of workplace pensions. Those that were properly set up and those that were set up with consultancy charging and commission pre-paying for advice (which may never be delivered) or for “business as usual services” which should have been paid for by the employer.
That schemes established up to 31/12/12 can be allowed to reward advisers through commission, while schemes set up from 01/01/13 can’t is patently absurd. Unless something is done about commission schemes, especially those sold in the run up to RDR on a “buy now while commission lasts” basis, is absurd.
We must urge the OFT and DWP to be strong on this. We cannot have confidence in a system where member’s pensions can be impacted by as much as 30% through advisory arbitrage.
The Government should have no sympathy with arguments that advisers were only playing by the rules in 2012. Advisers who openly ran seminars encouraging employers to set up a scheme for a couple of staff in 2012 so that commission could be paid to all staff joining in the years to come, were not acting in the best interests of the members who were ultimately their clients, if the scheme was occupational, they were inciting trustees to act against the interests of their members.
If those advisers who sold these schemes want those schemes to qualify as workplace schemes, they should revoke their entitlement to trail commission and move to a fee charging structure with the employer where the employer pays for work carried out. This will allow the charges by members to be adjusted downwards.
It seems to me the DWP are giving these advisers a limited window to get their heads round the new charging paradigm. If they do not react and sort the issue prior to the consultation, these advisers risk being “hung out to dry”.
I and other people who are set about restoring confidence in public pensions , will have no difficulty in assisting in that process.
The time for systematic abuses of the member through practices such as trail commission, active member discounts and salary sacrifice arrangements where employees take the pain and employers the savings is over.
10/05/13 is a momentous day for pensions, it is a momentous day for those of us who have campaigned for good and it’s a momentous day for www.pensionplaypen.com which has been set up to allow employers to choose and implement good schemes and know exactly what they and their staff are going to pay.