Driving into work today, a strange thing happened…. over the radio the UK government invited me to take some free money from my employer…
Apparently, “we are all in” and if I put some money into a pension then my employer has to do the same and I get money? Even better I only pay low, low charges on my free money?
Auto enrolment is a dangerous thing for you and the whole adviser industry…
On a base level it creates an opportunity for you, in terms of a “foot in the door” with business owners who could give you other, more profitable work.
Unfortunately, the low, low charges being promised are simply not true. Although NEST stipulates a 0.3% charge to insurance company providers, most monies will fall into the TATA default, which carries an extra 1.8% charge.
This idea of not being able to charge an amount of the fund is a worrying development in government and regulatory thinking.
What if the FCA, in its infinite wisdom decides that taking a percentage of assets is not a fair method of charging clients and that an hourly rate would be more appropriate?
Do you think there would be a groundswell of support from the public in support of advisers getting paid by a percentage or would they be keen on an hourly charge?
What would the impact be on your turnover and profit if your largest funds turned into a £200 per hour charge?
Many larger advisory firm owners are considering whether this industry, plagued by government tinkering, is the right place to hold the majority of their assets?
Hopefully, there will never be caps on other charges but I wouldn’t bet on it.
You’ve taken a massive leap from AE to adviser charging. You’ve also made the same mistake others have made over the regulators concerns on how some firms are charging.
The regulator said they had concerns that some firms only means of charging was to take over their client’s investments and charge a fee based on the size of those assets. This meant the client, by definition, had to invest money with the new adviser otherwise they wouldn’t receive a service. That is not what independence is about, and it also encourages a scenario where investments are cashed in and re-invested (or churned) simply to pay for the advisers time.
That is all it was and they are 100% correct in their concerns, in my opinion.
These will be firms who still don’t think clients will pay fees. What they have missed is that clients will pay fees, they just need to believe the adviser is worth it.
To work out government’s thinking on NEST & low charges you need to understand something Steve Webb said a year or so ago. He wanted NEST to offer cautious to low risk funds as the target market for AE was the young & low paid. What he didn’t want happening was that they would receive their pension statement each year and if they saw their money had gone down, they might come out of the scheme.
Naturally, if you are investing in low risk/cautious funds then the chances are that the returns are unlikely to be very high and so you cannot ruin that further with ‘high’ charges. Hence the dilemma.
The problem with all that is we are not education people on risk v reward and I think I’d feel very aggrieved if someone invested my money for 40 years in low risk funds, in case the money lost value in the early years. But there we are.