A glut of employers reviewing advice fee arrangements ahead of a deadline next year for the ban on non-indemnity commissions will leave “red faces” and will prompt some “awkward” conversations with advisers in the coming months, according to a consultancy.
Michael Spink, lead defined contribution consultant at Spence and Partners, predicts there to be some “red faces” when employers begin interrogating advisers on their commission switch to fees in the run up to April 2016.
This is the date when most providers will cut the commissions in line with the formal end date in legislation passed by the coalition government, coinciding with the introduction of a charge cap on workplace pensions.
Major insurers including Aviva, Aegon and Royal London all confirmed last year that they would continue to pay legacy commissions right up until the deadline next April. Scottish Widows came in for intense criticism when it broke ranks and ended legacy commission last November.
Maureen Ruddy, director of Corporate Benefits Consulting in Glasgow wrote in a letter published in FTAdviser sister title Financial Adviser that the move, along with decisions by the likes of Aviva to end commission on secondary business, would cost a third of recurring income.
Speaking at a Spence at Partners event held in London this morning (14 April), Mr Spink said that there would be a “raft of activity” later this year and at the beginning of next year from employers reviewing their advisers.
He said that we have a situation where many employers normally at the smaller end in the UK have never paid fees for pensions and in many cases they will not have “really questioned what the actual commissions being paid for advice were”.
He said that as a result, many employers have had all their services provided to them and everything has seemed in check. He also warned many advisers would be left as in the above example with an abrupt end of trail income.
“Many advisers we don’t think yet have broached the subject of the fact that come April 2016 we won’t be getting a commission any more from the insurance company, and we are going to have to come to you the employer and talk about you paying a cheque for the adviser services.”
He said that this would be another increase in costs which employers have not really yet been “turned on to”.
He added: “Let’s be quite clear, the majority of advisers do the right thing by actually providing a service which bears some semblance to the commission that they get back.
“But I think there will be a few red faces when employers ask the question ‘how much commission did you earn last year?’ and ‘tell us how that computes with the out of hours service you did last year?’
“They are going to have some pretty interesting conversations - I use the word awkward.”