Report to the FSA from the Consultancy Charging Working Group - March 2011 

In June 2006 the Financial Services Authority launched a detailed review - the Retail Distribution Review - of the retail investment market, designed to address what it saw as insufficient consumer trust and confidence in the operation of the market.

In June 2010, FSA announced that it intended to ban the payment of commission on new corporate pension schemes from December 31st 2012. Instead, advisers would need to be remunerated by other means, including fees and/or consultancy charges. Commission arrangements for schemes in existence at this date can continue.

As part of its consultation on this issue, FSA sought suggestions about the fairest way of allocating consultancy charges among different members of corporate pension schemes, allowing for factors such as different ages and different contribution levels. The responses included suggestions that a working party be established to consider the issue, with a view to issuing a form of industry guidance. FSA recognised that the corporate pensions market was distinct from other areas covered by the RDR and that it would therefore not be appropriate for FSA to prescribe the detail of how consultancy charging should work. Accordingly, FSA decided to establish an industry working group to conduct discussion about the allocation of consultancy charges among members of corporate pension schemes.

At the request of FSA, SPC agreed to facilitate the work of this group and to provide its Chairman (Sir James Hodge, the SPC Chairman). Terms of reference were agreed between FSA and SPC for a "Corporate Pensions Consultancy Charging Working Group". SPC then sought applications to join the Working Group from its membership. Applications were also invited from other firms/ organisations, which had expressed an interest in the issue or which were thought likely to have an interest. All who applied to join the Working Group were able to do so. Eventual membership comprised trade bodies, pension providers, independent financial advisers (IFAs), employee benefit consultants, third party administrators and employer bodies. (Consumer bodies were invited to attend but declined to participate.)

FSA provided the Secretariat of the Working Group as well as an observer at its meetings.

The Working Group held its first meeting on October 7th 2010 and met a further seven times, the final meeting being on February 25th 2011.

The Working group did not debate the merits or otherwise of moving to consultancy charging, as FSA had already published its final rules. Nor did the Working Group seek to influence changes to FSA's rules or the issuing of formal guidance by FSA. Rather, the Working Group attempted to produce guidance on good practice (and caveats about poor practice) to which firms might look.

The guidance is not prescriptive and is intended purely as a guide as to how consultancy charging might operate in practice. The Working Group recognised that there is no one single fairest way to allocate consultancy charges and that each scheme will have its own individual set of circumstances. However, the Working Group offers its report as guidance to firms and others about the issues which should be considered and addressed when consultancy charging is discussed with employers (and employees).

The Working Group focused its efforts mainly on contract-based pension schemes, including group personal pensions, group stakeholder pensions and group SIPPs. but the Group considers that its deliberations and conclusions around consultancy charging can have equal application to defined contribution occupational pension schemes.

The Working Group produced the guidance as individual industry practitioners, rather than as representatives of their firm or organisation, which have not necessarily endorsed the guidance.

For a copy of the guidance please click here.