Scottish Life

Adviser & Consultancy Charging Options

Presented by Fiona Tait ACII FSFA I Business Development Manager

A shared Approach

Agenda

What is AC/CC

Provider influence

Legacy Issues

Definitions

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)

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)

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

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

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

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

Source: FSA Factsheet SFDFS056 05/11

In practice

Adviser decides

Commercial decision

Producthow much to charge client for their services

Provider decides

Commercial decision

amount of AC/CC that their product can support

Client decides:

Personal decision

whether to accept adviser’s terms

where it comes from

Fee Charging

Explicit cost agreed with client at outset

Explicit cost agreed with client at outset

Explicit cost agreed with client at outset

Explicit cost agreed with client at outset

Adviser can receive full amount up front

Adviser can receive full amount up front

May have to be paid over time (regular contributions)

May have to be paid over time (regular contributions)

Client pays out of taxable income

Client pays out of taxable income

Net cost reduced by tax relief on pension conts

Net cost reduced by tax relief on pension conts

Included in 5% tax-deferred income (bonds)

Included in 5% tax-deferred income (bonds)

Full 5% tax-deferred income available (bonds)

Full 5% tax-deferred income available (bonds)

Adviser Charging

No need for client to make explicit payment

No need for client to make explicit paymentClient writes a cheque!Client writes a cheque!

Payment options (1)

Cashflow planning

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

Payment options (2)

Cashflow planning

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

Adviser Charging

Explicit cost agreed with client at outset

Explicit cost agreed with client at outset

Explicit cost agreed with employer at outset

Explicit cost agreed with employer at outset

Can coverinitial set up costs

plus ongoing services

if provided

Can coverinitial set up costs

plus ongoing services

if provided

Can coverinitial set up costs

plus ongoing services

if provided

Can coverinitial set up costs

plus ongoing services

if provided

Costs will be spread across scheme membership

Costs will be spread across scheme membershipOnly 1 client to considerOnly 1 client to consider

Legacy issues for pre-RDR plans

Legacy issues for pre-RDR plans

No legacy issues for pre-RDR schemes

No legacy issues for pre-RDR schemes

Consultancy Charging

Some clients may by charged both!Some clients may by charged both!

A Shared approach to AC and CC

High level principles

Starting and stopping AC/CC

Changes to adviser firm

Generic principles

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

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

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.

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.

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

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

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

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

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

Carry out research to find suitable investment optionsCarry out research to find suitable investment options

Gather information about the customer (fact-find).Gather information about the customer (fact-find).

2. Research2. Research

3. Report3. Report

4. Recommendation4. Recommendation

5. Intermediation5. Intermediation

6. Ongoing reviews6. Ongoing reviews

1. Fact find1. Fact find

VAT-ableVAT-able

VAT-ableVAT-able

VAT-ableVAT-able

VAT-able?VAT-able?

VAT-ableVAT-able

Source: ILAG revised HMRC guidance on VAT post RDR

“Intermediation gateway”

Legacy issues – individual policies

What are legacy assets

When must AC be used

When can commission continue

Timeline 1 Jan 2013

Ongoing commission

Increments

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

Pre-RDR paymentsCommission may continue on payments which are made as the result of a pre-RDR contract

Ongoing contributions

Increment

Which means thatPre-RDR policies will incorporate two separate charging structures

Timeline 1 Jan 2013

Ongoing commission

Contractual changes

Ongoing contributions

Escalation

Which means thatPortfolios which include automatic rebalancing at outset can continue to pay ongoing commission

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

Note - This also covers outstanding initial commission

Timeline 1 Jan 2013

Ongoing commission

Fund switches

Which means thatIf directly-held investments are switched future payments must be made via AC

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

Life Policies:3 (1) a long term insurance contract; and(a)A long term care insurance policy(b)A pension policy

Source: FSA Handbook – glossary entry “life policy”

Fund switchFund

switch

Timeline 1 Jan 2013

Ongoing commission

Change of adviser

RC not re-registered

Increment

Which means thatYou will be remunerated for work done for new clients

Which means thatYou will be remunerated for work done for new clients

Trail commission may continue to be paid to the original adviser

Trail commission may continue to be paid to the original adviser

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

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

Any new payments must be remunerated using Adviser charging

Any new payments must be remunerated using Adviser charging

RC re- registered

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

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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.

Important information

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.

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