Group Pensions – Who is the Client?

I have some questions I’d like help with please.

A regulated firm provides advice on a group pension scheme. Who is the client?

On the one hand, the client agreement is probably with the owner or representative of the business. The advice letter is addressed to the company. At some point it is stated that any advice provided to individual members is generic only. So it is pretty clear that the company is the client.

However, the product is provided to the individual. The quality of the product (particularly in terms of charges) affects the members, not the company. The end recipient of the advice is the individual. So are they actually the client?

Perhaps we should consider who pays the bill for the advice. If the scheme is nil commission (as all future new schemes must be) then the company pays the fee, and probably has the right to consider itself the client.

But what about where the members pay the bill, via commission (aka consultancy charging)? If I am asked to pay for something, I think I’d probably feel like I was the client. And yet the member has no say in the product they receive.

Let us apply this to the current position. I don’t have any figures on this, but I’m guessing that the vast majority of schemes set up last year were done so on a commission paying basis. And, with that clever product provider invention called Active Member Discount (or Leaving Member Penalty as it might have been called) some of those commissions can be pretty high.

Post RDR it is highly possible that such schemes could now be moved to one that would offer considerably lower charges. But that would cost the employer a fee.

Thanks to the recent decision to ban consultancy charging for any new schemes but allow it to continue for old ones, the option to move to a new scheme with lower charges but still paying a modest commission is not permitted. So an adviser firm is faced with a decision. Who is the client?

Assume the company is the client and keep existing schemes will result in more expensive than necessary schemes and allow commissions – sometimes very high commissions – to continue.

Or assume the individual is the client and recommend moving to lower charging schemes, resulting in unwanted fees to the company and turning off any legacy commission.

We know which option regulated firms would probably like to choose, and many employers too. But that is not the question.

Question number 1 – who is the client and who, therefore, does the regulated firm have a duty towards?

Question number 2 – does the FCA see it this way?

Question number 3 – will the FCA see it this way in 3 years time when they look back and realise that customers have higher charging pensions than they might otherwise have had as a result of the ban on consultancy charging?