L&G accused of post-RDR unfair pricing by advisers

Simon Webster, managing director of Kent-based Facts and Figures Financial Planning, said he had seen cases of a number of product providers trying to ramp up prices since the RDR was implemented.

L&G released a structured product earlier this month offering the same coupon as an earlier version in November, despite commission being stripped out.

The Legal & General Early Bonus Plan 10 had an offer period of 5 November 2012 to 21 December 2012, offering a coupon of 16.8 per cent after two years, with a commission of 3 per cent.

However, the Legal & General Early Bonus Plan 11, on offer between 2 January and 22 February 2013, has commission stripped out but still offers the same rate.

Mr Webster added: “It is a legitimate question as to why the rates are the same, and appears to be a growing issue.”

James Harrington, head of investment implementation for L&G, denied that the firm was hoarding commission as a result of the RDR and said the coupon was the same due to funding markets.

He said: “Structured products and kick outs are linked to the funding offering by the bank that is the underlying counterparty.

“The government’s Funding for Lending Scheme means the banks do not need to pay as much as they previously did, as they can get funds elsewhere.

“When we structure a product we buy debt from the bank. That note will pay a certain return. The more they need money, the more they will pay. All of the banks can get cheap funding at the moment.”

He said the coupon also depends on volatility in the market and claimed a client is better off, as the coupon would be lower if commission were included.

It comes despite industry commentators claiming that the RDR would be a boost for structured products.

Ian Lowes, managing director for Lowes Financial Management, and founder of Structured Product Review admitted structured products had offered better coupons in the past, but said: “There either needs to be increased funding rates or increased volatility to improve rates. This has happened a few times before, it is just part of the cycle.”

Last week, Steve Laird, director of Belfast-based Carrington Wealth Management, said he believed many fund management groups were charging the same AMC (normally 1.5 per cent) as they had charged in 2012, despite not having to pay advisers trail commission in the post-RDR environment.

Earlier this month, sister publication FTAdviser revealed that MetLife had written to advisers, stating it was increasing the AMC on its Income for Life Bond in the wake of the RDR, claiming harsher tax treatment of adviser charging than commission.

A spokesman for MetLife said he expected the practice to be widespread in the market, adding: “When commission was paid the charge was treated as a business expense and reduced the amount of tax we had to pay.”