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A shared Approach. Presented by Fiona Tait ACII FSFA I Business Development Manager. Adviser & Consultancy Charging Options. Agenda. What is AC/CC Provider influence Legacy Issues. Definitions. We are not prescribing the basis on which you charge for your services….

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A shared approach
A shared Approach

Presented by

Fiona Tait ACII FSFA I Business Development Manager

Adviser & Consultancy Charging Options


Agenda
Agenda

  • What is AC/CC

  • Provider influence

  • Legacy Issues


Definitions
Definitions

We are not prescribing the basis on which you charge for your services….

… but we do expect you to set and operate your own structures responsibly

The charge for the service can either be paid in the form of a deduction from the client’s investment or separately (e.g. by cheque)

Charges should reflect the service being provided, rather than the particular provider or product being recommended

Source: FSA Factsheet SFDFS056 05/11


In practice
In practice

Post-RDR terms of business agreement

Provider decides

Adviser decides

Product

amount of AC/CC that their product can support

how much to charge client for their services

Commercial decision

Commercial decision

£

Advice Charge Instruction (poss. Part of application form)

Advice Charge Agreement(poss. part of client agreement)

Client decides:

  • whether to accept adviser’s terms

  • where it comes from

Personal decision


Fee charging
Fee Charging

Adviser Charging

Explicit cost agreed with client at outset

Explicit cost agreed with

client at outset

Adviser can receive full amount up front

May have to be paid over time (regular contributions)

Client pays out of

taxable income

Net cost reduced by tax relief on pension conts

Full 5% tax-deferred income available (bonds)

Included in 5% tax-deferred income (bonds)

Client writes a cheque!

No need for client to make explicit payment


Cashflow planning
Cashflow planning

  • Payment options (1)

Note - this is subject to provider agreeing to offer these terms


Cashflow planning1
Cashflow planning

  • Payment options (2)

Note – this is subject to provider agreeing to offer these terms


Adviser charging
Adviser Charging

Consultancy Charging

Explicit cost agreed with client at outset

Explicit cost agreed with

employer at outset

Can cover

initial set up costs

plus

ongoing services

if provided

Can cover

initial set up costs

plus

ongoing services

if provided

Only 1 client to consider

Costs will be spread across scheme membership

Legacy issues

for pre-RDR plans

No legacy issues

for pre-RDR schemes

Some clients may by charged both!


A shared approach to ac and cc
A Shared approach to AC and CC

  • High level principles

  • Starting and stopping AC/CC

  • Changes to adviser firm


Generic principles
Generic principles

  • The AC agreement is between the client and the adviser firm, not the adviser.

  • The CC agreement is between the employer and the adviser firm, not the adviser.

  • AC/CC taken from pensions can only pay for advice and services on pensions.

  • Providers will communicate to the market the products through which they will facilitate AC and CC, and the AC and CC structure available for these products.

  • Before any AC or CC can be facilitated, the adviser firm and the provider need to re-agree terms of business.

  • AC/CC instructions will capture any initial, ongoing or ad-hoc AC/CC and stipulate that it will be the gross amount (i.e. including VAT). The CC instruction can be at scheme or at individual level.

  • Providers do not require information with regard to AC/CC which they are not facilitating.

  • The provider will comply with AC/CC instructions once validated, in a timely manner.

  • Advisers or employers will communicate services/changes to services being provided to the client or individual, in a timely manner.

  • Adviser will keep their own VAT records for AC/CC. Providers will not keep these records.

Source: A Shared Approach to Adviser and Consultancy Charging Jan 2012


Product design
Product design

  • Providers will not police “decency limits”

  • We cannot tell you how much you should charge

  • We will however limit the AC/CC that can be paid from our products

  • This is a commercial decision

  • You can, if you think it is fair, negotiate an additional fee with the client

  • The maximum AC/CC due is to cover work done, it is not a default amount!!!


Menu of services
Menu of Services

“Intermediation gateway”

VAT exempt

Gather information about the customer (fact-find).

1. Fact find

VAT-able

2. Research

VAT-able

Carry out research to find suitable investment options

Provide the customer with reports, financial health-checks, forecasts

VAT-able

3. Report

VAT-able

Recommend specific investment products to the customer, including the prices at which these can be arranged

4. Recommendation

Act between the product provider and the customer with a view to arranging the sale of the Retail Investment Products agreed with the customer

5. Intermediation

And, where applicable, i.e. where the customer agrees to an ongoing review service, monitor the customer’s ongoing position to ensure that the products continue to meet the requirements of the customer.

6. Ongoing reviews

VAT-able?

Source: ILAG revised HMRC guidance on VAT post RDR


Legacy issues individual policies
Legacy issues – individual policies

  • What are legacy assets

  • When must AC be used

  • When can commission continue


Ongoing commission

Which means that

Pre-RDR policies will incorporate two separate charging structures

Ongoing commission

  • Increments

Post-RDR payments

Paymentswhich are made as the result of advice given post-RDR must be remunerated via Adviser Charging

Premium level £

AC

Increment

Trail commission

Pre-RDR payments

Commission may continue on paymentswhich are made as the result of a pre-RDR contract

Ongoing contributions

1 Jan 2013

Timeline


Ongoing commission1
Ongoing commission

  • Contractual changes

Which means that

Portfolios which include automatic rebalancing at outset can continue to pay ongoing commission

Premium level £

Trail commission

Escalation

Commission may continue on paymentswhich are made as the result of changes which are part of a pre-RDR contract

Ongoing contributions

1 Jan 2013

Timeline

Note - This also covers outstanding initial commission


Ongoing commission2

Which means that

If directly-held investments are switched future payments must be made via AC

Ongoing commission

  • Fund switches

  • Life Policies:

  • 3 (1) a long term insurance contract; and

  • A long term care insurance policy

  • A pension policy

Premium level £

Trail commission

Fund switches within life policies do not create any new payments and renewal commission may continue to be paid

Fund switch

Fund switch

1 Jan 2013

Timeline

Source: FSA Handbook – glossary entry “life policy”


Ongoing commission3
Ongoing commission

Which means that

You will be remunerated for work done for new clients

  • Change of adviser

Any new payments must be remunerated using Adviser charging

Premium level £

Or it may be re-registered, with the client’s agreement, to the new adviser firm

AC

Increment

Trail commission

RC not

re-registered

RC

re- registered

Trail commission may continue to be paid to the original adviser

1 Jan 2013

Timeline


Summary
Summary

  • Post-RDR new payments must be paid via AC/CC

  • Charging should be related to the services provided

  • Existing commission can continue on pre-RDR contracts


Scottish life
Scottish Life

5 star service

Tried and tested administration

The ultimate default fund

3 year anniversary of Governed Portfolios

Group Pension Provider of the year

Co-branded support material

Individual Pension Provider of the year

Pay-as-you go options for drawdown and self-investment

An evening with Ian Robertson & special guests - 19


Important information
Important information

The information provided is based on our current understanding of the relevant legislation and regulation and may be subject to alteration as a result of changes in legislation and practice as well as the circumstances of the individual.

The figures shown in any case studies are examples only, and while they highlight some of the opportunities for planning, it should be recognised that they are not an exhaustive description of the opportunities or pitfalls.

Scottish Life, St Andrew House, 1 Thistle Street, Edinburgh, EH2 1DG.  Scottish Life is a division of Royal London and markets products produced by Royal London.  Royal London consists of The Royal London Mutual Insurance Society Limited and its subsidiaries.  The Royal London Mutual Insurance Society Limited provides life and pension products, is a member of the Association of British Insurers and the Association of Financial Mutuals and is authorised and regulated by the Financial Services Authority, registration number 117672. Royal London Marketing Limited acts as an insurance intermediary for other providers of general insurance and other life assurance products and is authorised and regulated by the Financial Services Authority, registration number 302391.  RL Corporate Pension Services Limited provides pension services and is authorised and regulated by the Financial Services Authority, registration number 460304.

(37PR0497)

An evening with Ian Robertson & special guests - 20


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