A levy to fund the guidance guarantee proposed by the government would be “unfair to advisers and consumers” and could swallow up to 5 per cent of advice firms’ retained profits, according to the Association of Professional Financial Advisers.
Apfa has called for changes to the proposals for a levy to be based instead on firm turnover, in response to the Financial Conduct Authority’s consultation on draft guidance guarantee levy rules.
According to the consultation paper there are three possible options in calculating the fee.
Option one means that advisers will be paying 30 per cent of the levy; under option two everyone pays an equal 20 per cent, and under the third option, the allocation will be “in line with consumers’ retirement choices”, meaning the allocation will take into account the significance that various financial products and services play in consumers’ retirement choices.
The Pensions Advisory Service has estimated that the annual cost of providing the guidance guarantee service would be £15m to £20m.
An annual levy of £20m would cost advisers between £4m and £6m under the FCA’s proposals. As a result, a levy of this proportion would represent between three and five per cent of advisers’ retained profits, Apfa said.
Chris Hannant, director general at Apfa, called for a levy which is allocated on the basis of firm’s turnover - using information already provided by the regulator.
Mr Hannant said: “We support the move toward greater flexibility for consumers at retirement, and we believe that professional financial advisers have an important role to play.
“However, on the issue of the levy to fund the guidance guarantee, we are concerned that under the FCA’s proposals a disproportionately large amount of the cost will be shouldered by financial advisers and passed on to consumers.
“This undermines the aim of the guidance guarantee: to encourage people to seek help with their retirement planning.”
Mr Hannant continued: “The FCA’s current plans are unfair on advisers, and ultimately, unfair on consumers. It’s vital that when finalising its levy the FCA uses a method that reflects the relative size of different sectors and the benefits they are likely to gain.
“We think a fairer method would be to allocate the levy on the basis of firms’ turnover, utilising information already held by the regulator. This will ensure that contributions are distributed proportionally and fairly across the industry.
“We will continue to work closely with the FCA and other parties over the coming weeks and months to ensure the best outcome for advisers and consumers.”
In June this year, the National Employment Savings Trust proposed that the ‘guidance guarantee’ should be funded by a levy across the financial services sector to make sure those with the smallest pots are not forced to pay disproportionate costs.
