Loophole in GPP structure flouts RDR norms, says IFA



Present GPP Scheme is Flawed, Says IFA

Present GPP Scheme is Flawed, Says IFA

An IFA has pointed out a loophole in the structure of group personal pension schemes arguing it goes against the principles of fair treatment to customers and has urged the FSA to take corrective measures.

The adviser, Robert Reid of city based Syndaxi Financial Planning says the loophole present in the GPP scheme structure means advisers can charge higher commission from people who exit the scheme and cut them down on those who choose to continue.

The discrepancy, claimed Mr. Reid, is against the FSA rules and flouts the Retail Distribution Review (RDR). Many advisers were selling GPP schemes with an active member discount attached to them, meaning if they leave the scheme, they pay higher commissions, which in turn helps in paying off the commission paid to set up the scheme, he added.

“There is a big concern over IFAs charging on pensions and the active member discount on GPPs”, said Mr. Reid pointing out that existing members may be charged 0.5% commission where as leavers’ charges could rise up to 1%.

“This cannot be treating customers fairly and is certainly against the spirit of RDR. Under the FSA’s rules on charging, in this case, advisers would be giving less of a service but charging more. If IFAs provide a service there is no problem but under RDR, you cannot charge more for the person who has left than you charge the person who stays”, he added.

The FSA in its latest quarterly consultation paper CP 11/11, said an amendment should be made to the advisory fees for GPPs and firms must ensure that an individual member of a GPP scheme who wishes to discontinue the ongoing service for individual advice is allowed to do so without being required to withdraw investments immediately.

The consultation paper says if a customer cancels an ongoing advice service, the firm only charges the customer in proportion to the service already provided by the firm, up to the date of termination.

If the firm provides additional services, it should communicate to the customer that those related charges will be levied after the ongoing advice service has been cancelled.

“We are going to keep a close eye on people who are churning to make sure this does not happen”, a FSA spokesman said.

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