Corporate advisers should be FSA-regulated – Pensions Institute

Corporate pension advisers should be regulated in the same way as individual IFAs says a wide-ranging and hard-hitting new report from the Pensions Institute that is also critical of consultant-providers who are operating on this basis to protect their revenues.

The report, Caveat Venditor, by Debbie Harrison, David Blake and Kevin Dowd of the Pensions Institute, says corporate intermediaries should be regulated because employers, particularly in the smaller company market, cannot be regarded as informed institutional purchasers meaning their decisions can result in unacceptably high charges for their employees. The report also attacks high fees and poor default funds and calls for a kite mark for auto-enrolment schemes.

The report describes the exclusion of corporate intermediaries from regulation as a ‘loophole that leads to member detriment’. It says the FSA and from 2013, the new Financial Conduct Authority (FCA) – should regulate advice to employers in the same way in which they regulate advice to individuals.

The report also attacks consultants who have entered the DC market as scheme providers, constructing their own scheme using one or more asset managers for the default fund and one or more life offices for the platform.

The report says: “It is not clear if consultant-providers act in this capacity as discretionary asset managers, restricted-advice IFAs, or both, but in practice the difference between ‘independent’ and ‘restricted’ in these cases appears to be blurred, as is the boundary between ‘consultant’, ‘provider’ and ‘asset manager’.”

Industry professionals interviewed for the report said consultants are taking this step in order to retain their fee-earning role as default fund designers, which is lost if the asset manager or multi-employer scheme undertakes this role. They also said that the consultant-provider model creates market distortions in the employer’s ‘choice’ where the consultant charged with selecting a scheme on an independent basis is also able to offer its own product.

One asset manager interviewed for the report said: “This is a clear conflict of interest. If a consultant has its own product, it is effectively offering tied or restricted advice under RDR, so how can they claim to give independent advice?”

The report cites the FSA as responding with the opinion that any change of its regulatory remit would require legislation, which would need to be instigated by the Treasury.

Tom McPhail, head of pensions policy, Hargreaves Lansdown says: “We would like to see any advisory or consultancy work relating to auto enrolment schemes made a regulated activity.”