Should the Govt legislate to require product providers to reduce a scheme’s charges to reflect the withdrawal of commission?
Syndaxi Financial Planning director Robert Reid.
Yes. Providers should be made to pay this over by reducing their charges to reflect the extra revenue they will gain by not handing this money over to advisers. They shouldn’t just get a windfall because the OFT has said commission is distorting the market – that would not be fair.
The problem they will have is they will argue that their computer systems have code in them that do not allow them to do this, so they will say it is too difficult to do.
You could give the money directly back to the client – they have their bank details in most cases. It would be nice to recredit it to their pension fund but you might find that they might not be able to do this from a technology point of view. But however they do it, it would not be fair for pension providers to profit from this when the idea of the exercise is to improve outcomes for the members of pension schemes.
Capita Employee Benefits chief executive Nick Burns
No. Or more precisely not necessarily and certainly not yet.
The OFT report has given the providers plenty to chew over and there is no doubt that a new price equilibrium will be reached in due course to reflect the removal of commission and AMDs.
Procurement will stay play a part in the services offered by consultancies and therefore there will be significant commercial pressures on providers in the post-commission world to protect their existing book of business. It will still be incumbent upon advisers to drive best value (not necessarily lowest price) on behalf of their clients.
The real measure will be how providers deal with the book of business where there is no longer an adviser actively supporting a client.
However, i think the OFT’s message to providers has been clear and the on-going potential for a referral to the Competitions Commission is a very powerful incentive to deal with the inevitable repricing exercise in a fair and prudent manner.
This should negate the need for yet more legislation but clearly it remains a card that the Govt could play if some providers do not act in a manner consistent with the spirit of the OFT’s findings.
Aegon head of business regulation Steven Cameron
No. The focus should be on the overall charge on the scheme and not on whether there is commission or not.
Schemes have been set up on all sorts of bases – some have explicit charges to reflect commission built into them but others do not
If the government were minded to legislate they would need to think of the practical implications of doing so. Abolishing commission altogether could result in market turmoil and potentially derail implementation of auto-enrolment.
We already know there is a limited amount of corporate adviser capacity in the market. This would be significantly reduced if existing schemes had to be restructured to take account of new charges.
There are schemes with very competitive charges that have commission and schemes with very uncompetitive charges that have no commission.
The most important outcome should be the total charge and not not what that charge is going to pay for.
In light of the commitment that we and other ABI members have given to the OFT, charges will come down, and the value for money argument should be the key argument, not whether schemes will switch, which is in fact what the FSA was trying to stop happening.