Providers unite to set out consultancy charging framework

Five providers have grouped together to agree common processes for the implementation of consultancy adviser charging in a bid to avoid chaos when the RDR is implemented next year.

Aegon, Friends Life, Legal & General, Prudential, and Scottish Life have published a set of common principles and processes for the operation of consultancy charging with the aim of improving the efficiency of RDR implementation.

The principles and processes are contained in a report, facilitated through Deloitte, and with adviser input from Sesame Bankhall, called A Shared Approach To Adviser And Consultancy Charging.

The paper sets out the various potential remuneration options that will exist post-RDR, and addresses opt-outs, VAT, one-off charges and changes to advisers. But it does not address issues such as decency levels or the level of charges that will actually be taken.

Options for regular pension contributions include initial consultancy charges expressed as a fixed amount or a percentage, over a fixed period between one and 24 months.

Ongoing charges, whether a fixed amount or percentage of fund value should also be facilitated, with a similar approach adopted for ad hoc consultancy charges, the paper proposes.

It also suggests that on cancellation within a cooling-off period, refunds to the client will be allowed either net or gross of consultancy charge, although a scheme used for auto-enrolment must make a full return of contributions where there is an opt-out within the three months after joining.

The paper also contains principles for best practice in relation to changes in the rate of VAT, the VAT status of a service provided, and situations where an adviser’s VAT status changes because they go above or drop below a VAT threshold.

Steven Cameron, Head of Regulatory Strategy, at Aegon says:“We feared there could be chaos in early 2013 if advisers were to agree certain charging structures with clients, only to find the provider they then recommend wasn’t offering that particular option. The opportunity to contribute to a cross-provider initiative to identify where it would be to the benefit of advisers, clients and providers to develop some common processes was something we couldn’t pass up.”

“We also saw real merit in helping move forward with some common terminology and producing one of the first concrete deliverables to support advisers in their preparations for RDR.”

Alasdair Buchanan, head of communications at Scottish Life says:“This will help to simplify processes and improve understanding of how things will work in practice and it will introduce a common industry way of working and thinking for Consultancy Charging.”

Gavin Norwood, partner at Deloitte, says: “The Retail Distribution Review will result in a huge change in the way financial advisers are paid for their advice. The changes will come into effect by the end of 2012 and although many of the rules and guidance are in place, the industry needs to develop a common view of how adviser charging and consultancy charging will work in practice.”