Existing consultancy charging arrangements will have to be revisited and commission on legacy schemes could also ultimately be affected if the DWP presses ahead with a ban, warn industry experts.
A ban on consultancy charging would mean advisers who have spent much of the last year renegotiating their terms of engagement with clients will have to agree new remuneration arrangements with their clients.
It could also increase the likelihood of commission on legacy schemes being unravelled, it has been suggested.
Jamie Jenkins, head of corporate strategy & propositions at Standard Life says: “Any schemes we have quoted for on a consultancy charging basis are to start in 2013. It is only five weeks away, so timing is a concern. But if things change we will have to renegotiate these on the basis of where we get to.
“Does this affect existing commission arrangements? Commission on legacy schemes does not appear to be in scope at the moment. But it would be a strange anomaly for there to be commission on some schemes and no consultancy charging equivalent on others.”
McPhail says: “The DWP, FSA and TPR are all concerned about the idea of small auto-enrolment schemes seeing members having significant losses through consultancy charges. Whether consultancy charging is dead in the water is hard to say, but torpedoes are certainly being launched in its direction.
“Would an outright ban lead to a ban on legacy commission? Revisiting that would be more challenging. Would the government want to do that right now? It might do, but it might see that as phase two of the project.
“We might instead see the government force a price cap on providers, at which time they go to advisers and say ‘we have got to renegotiate these contracts’ on which commission is being paid. Providers have advisers over a barrel here because they won’t be able to take schemes anywhere else.”