The vultures are circling around consultancy charging, says John Greenwood
As if the DWP consultation questioning its very existence wasn’t enough, in the past few weeks we have seen more hurdles emerge to trip up the controversial remuneration strategy that is consultancy charging.
HMRC’s publication of a ruling saying that consultancy charges will not be exempted from VAT will not have been welcomed by those planning to use it, even if its position is consistent with the principle that pure advice is vatable while guidance towards a product sale is not.
Then we learn that the FSA’s Code of Business Sourcebook requires firms using consultancy charging to offer employees the choice to opt out of it. It is hard to know whether the person drafting this rule intended it to have the meaning it does.
I have heard debate over whether Rule 6.1C.20(2) applies to consultancy charges directed purely towards the member, or to generic advice services to all those in the scheme.
Let’s be clear. Advice directed towards an individual member in a face-to-face situation is governed by the adviser charging regulations. Consultancy charges are for services agreed by the employer that are delivered to all scheme members. If some members opt out then those that remain will have to shoulder an increased financial cost. And the consumer media will advise the public to opt out in droves unless the industry can put forward a pretty spectacular case for staying put.
We also have the DWP Select Committee weighing in with a call for an outright ban on consultancy charging. It may have completely missed the 20 per cent cut in low earning workers’ state pension hidden in the single-tier white paper. But it has got the bit between its teeth when it comes to consultancy charging.
It is ironic that competition between pro- viders for group pension business has driven workplace AMCs to their lowest ever levels in the past couple of years without the RDR being in place. Now it is looking increasingly likely that the FSA has sent providers and advisers on an expensive and wasteful goose chase in pursuit of a model that looks as though it could never have worked.
If consultancy charging is to be killed off then it’s back to the drawing board, just as auto- enrolment starts to gain real momentum.