THE QUESTION
Is there a contradiction between corporate intermediaries targeting growth in assets under advice and the advent of a feebased world
THE ANSWERS
Russell Warwick, distribution strategy director, Prudential
YES. With the advent of RDR, the trend of advisers moving from initial remuneration to ongoing remuneration in the form of percentages of investments has accelerated.
In parallel, as the FSA’s rules have also developed, there are some serious question marks emerging over how consistent this approach is with the shape of market envisaged by the Regulator.
At the consultation stage the requirement to separate initial and ongoing advice services and, along with this, to have separation of the costs associated with these services came to the fore. It is difficult to see how an advice charge model based on purely charging ongoing fees in relation to fund under management can be justified against these requirements, as inevitably costs associated with the initial advice service will need to be recouped through the ongoing charges.
This is put into even sharper focus when considered alongside the comments in the RDR policy statement and more recently in the pension transfer and platform thematic reviews. While some services will be limited to the size of a customer’s portfolio, others will not be.
Steven Cameron, head of business regulation, Aegon
NO. In principle there is not a contradiction between the two – the key to what the RDR will bring is transparency.
Under consultancy charging it will be possible to decide how to be remunerated for services.
There is nothing to say that this cannot be expressed in terms of funds under management, although there will be more transparency under what is received. That will apply both to the individual and corporate markets.
In the Discussion Paper on platforms, the FSA makes clear that it sees corporate wraps as completely interlinked. So it is right to scrutinise how remuneration of corporate wrap will develop against an RDR background. Chargers for investment management can still be fundrelated, and charges for investment advice can also be fund-related.
How it is played out is a delicate matter and advisers need to think carefully about what they are offering the market, what they are doing and what they are being paid for.
But the bottom line is if you are having trouble justifying what you are being paid for at the moment, you are going to find it much more the case in the future.
Tim Gillingham, director, Citrus4Benefits
YES. If you are at the top end then you will be wanting to blend managers, and there is a market for that sort of investment consulting. But for firms not offering that, there does seem to be a contradiction.
The RDR is indicating that you cannot have your own fund as the default fund, so that dilutes the value of these schemes for advisers gathering assets.
It is easier to make it work in the individual market because you are selling enhanced performance on a portfolio. But when it comes to the
workplace, it is a harder sell. Why would an employee with a nil commission scheme with a 0.5 per cent charge want to increase it to 2 per cent?
There are providers there offering that sort of governance, such as Scottish Life and Aegon, who can do it on a bigger scale.
When people ask us what our biggest client is, it is often a very small company, because they are the people we do more work for. Bigger companies have their own comp and bens managers, so the work you actually do for them is less.
Post-RDR it is all about how much work you actually do for people, not how big the scheme is.