Speaking at a round table event in London last week, advisers said Aviva’s announcement had given much-needed clarity to a key issue for intermediaries and employers, and welcomed the decision to unravel AMDs by levelling down to the active member rate.
Delegates at the event said they saw unpicking of AMDs as a key area of potential differentiation between providers, but argued those who did not move deferred members to the active rate would be perceived as not committed to the market.
The move to explicit fees was seen as bound to cause a significant change in the relationship between advisers and providers. Advisers said that where there were strong relationships with engaged employers, the elimination of commission would have limited impact. Conversely, unengaged employers or ones already feeling the burden of extra pensions costs due to auto-enrolment are looking at trying to cut out the adviser and go direct to the providers, they said.
Aviva will stop paying initial commission at the end of the year, when it will also end active member discounts and implement the 0.75 per cent charge cap on its modern schemes.
Jelf Employee Benefits Steve Herbert said: “If providers are serious about staying in the market, I can’t imagine anyone is going to do anything other than leveling downwards. Maybe there will have to be a mid-point but I can’t imagine anyone is going to go up.”
Premier Benefit Solutions director Martin Thompson said he had seen case where a provider had tried to move a client’s scheme charges to the mid-point between the active and deferred member charge.
Thompson said: “This was pre-DWP announcement on charges. We threatened them with a market review, and they still didn’t budge. So we went to the market review, and they budged immediately. Market pressure means if it is a decent scheme they are going to have to go to at least a matching position.
“I was pleasantly surprised, by Aviva’s position. I wasn’t quite sure what I was expecting from Aviva after the last year or so but I think it was a good position and the clarity is important and clients are asking about it today.
“The continuing trail is a smart move from a retention point of view because it is very difficult, or potentially quite difficult, to move that scheme while you are continuing to pay the trail. Why are employers going to want to start paying fees sooner than they want to. I think that is absolutely key to have an adviser charge replacement as soon as you can.”
Capita Employee Benefits head of DC consulting Gary Smith said: “Broadly speaking, we certainly welcome the clarity. From our clients’ point of view, the biggest challenge they are facing, not just in this space but broadly, is lack of clarity. With new regulatory change coming out almost on a weekly basis, clients are struggling to see any clarity. I was mildly surprised, in a positive way. Based on what we were expected it was bullish.”
Aviva managing director, workplace savings Brian Gabriel: “We think we have been pretty bullish. We have to be clear in the market place where we want to play, but first of all we have to be clear that we want to play.
There are a couple of caveats. We have said, also for a small number of schemes we may levy an employer charge. So for example, we are going down to the active charge, if we have schemes which have 85bps active/1.35 per cent leavers, if we come down to the active charge we have then got to go further down to the price cap – so economically it may not make sense. But this is a handful of schemes. By the end of the year, that charge will go down to reflect the fact that commission is no longer being paid. But the level commission will continue until 2016.”
Full coverage of this round table event will appear in a special supplement in the July issue of Corporate Adviser