Consultancies such as Space01 thrive on change…

but the last minute threat to consultancy charging is one change that is completely wrong-headed.

There are five weeks to go until the RDR comes into force. It represents an unprecedented and revolutionary change in the way advice is paid for and the way financial services products and services are delivered.

It also comes in the midst of another revolution, though one moving at a slower pace, the auto-enrolment pension reforms.

We have been debating both these reforms for many years, in the case of the pension reform for more than a decade. With the RDR, it was decided that rather than have individuals and employers pay for advice with a cheque i.e. making paying fees just about compulsory alongside the ban on commission, a new system of adviser charging was devised. With the corporate pensions market, we arrived at the idea of consultancy charging a little later. The intention was to ease the market into the system of payment by allowing it to be taken from the product.

Now the pension minister says he is so concerned about consultancy charging and its interaction with auto-enrolment that he is carrying out a short review. The threat is of a ban.

Space 01 has often been asked to help our clients deal with the uncertainty from both reforms so we can’t say that all this change has been bad news for us.

Even when it comes to our clients, the fund managers, insurers, wealth managers and even advisers, which have been directly disrupted, the reforms have also provided an opportunity to offer new services and reassess business strategies.

But while change isn’t always bad, the intervention from the Pensions Minister Steve Webb is. We feel it is completely unjustifiable and unreasonable.

First we have known about the nature and content of the pension reform and the RDR for years. This problem with consultancy charging – if it is a problem – should have been anticipated.

Second the FSA has already said that the application of CC can’t take the contributions below the statutory minimum so there is already protection for employees, along with all the other associated regulations.

Third, firms have spent months if not years designing new systems of payments and adapting their financial and marketing strategies to it. They have positioned themselves to help employers meet their statutory obligations and to deliver proper communications to employees.

Now those strategies are at risk from a ban on consultancy charging, because some consumer and trade union groups have decided it doesn’t fit with their view of the reforms and suggested consultancy charging could cause detriment. The minister has listened.

But this reform has been devised around the existing private sector pensions infrastructure including advisers. It was decided that provided pension schemes met certain qualifying criteria then they would be deemed suitable for auto-enrolment.

A ban on consultancy charging would throw the business plans of providers and advisers into turmoil. That is unfair when a reform envisages the involvement of the private sector and up till now it has.

But a ban on consultancy charging also risks undermining the work providers and advisers are doing to prepare hundreds of thousands of employers and millions of employees for auto-enrolment.

It could damage communication strategies and reduce the standard of scheme governance and undermine those outcomes that the Pensions Regulator has set so much store by. Crucially it could lead to more opt outs.

Those are the real risks to the goals of pension reform – not consultancy charging and some untested detriment. Once again, Space 01 is here to help if our clients want help adjusting their strategies. But at this late stage it’s an offer we really shouldn’t have to be making.

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