Thursday, 16 February 2017

More Bureaucratic Failure

One of my people is currently working through the pensions claims for a client of ours.  It's quite a lot of work as there quite a few plans, polices and investments and we are trying to get him a good deal and get it all nicely organised and set up, etc.
One of the plans is an old personal pension from a well known insurer with a guaranteed annuity rate (GAR).  The GAR is very good - 8% I think.  My colleague has 'advised' him to take this deal.
Now, if  we DO NOT 'advise' him and get him to declare that he has NOT received 'advice' on taking the GAR, the insurer pays us a commission of £1,500
On the other hand if we DO advise him and he DOES declare that he has received 'advice', then no commission will be paid, but the annuity rate will not be increased.  That is the insurer will trouser the £1,500.  (This commission cost is built into the contract at outset).
Yes, you read that right.  If we DO advise him we don't get the commission.  If we DON'T advise him we do get it.
This is the consequence of the rules set out in the Retail Distribution Review. (RDR).  You might not be surprised to learn that the RDR is viewed throughout the thinking part of my trade as a catastrophic failure. (See here).
Of course, the client is paying for all this failure. The incidence of regulatory imprests and deadweight costs falls on the client, not us. (FYI that cost varies between about 18% of revenue to 30% of revenue depending where your business sits in the financial services landscape).
(So what we will do here, what we are forced to do, is to game it.  The client will declare that he not received advice and we will take the commission.  And we'll offset it in full against our final invoice). 
Kafka would be proud.


Mark Wadsworth said...

Daft rule. The opposite rule would be just as daft.

Dinero said...

There must be something missing in the post, there is no explanation given for why there would be a commission for NOT advising. I can see why commsions would be banned under advise commision. But that reasoning would ban all commisions outright. Are you saying that the regulations are that nielvy stupid. i.e. that they allow commisions. Half of it doesn't sound right.

Dinero said...

23.35 continued

i.e. it entails that the regulators think that it is the usual state of affairs that intermediaries that have declared they have done nothing to send business to a firm then, following that, receive money from that firm.

Lola said...

D. No. It is mad. As I have stated it is how it works as a result of the flawed, and failed, RDR intervention.

The commission was always payable at NRA. If you now advise on that plan at NRA you don't get the commission. If don't advise on it, you do - assuming that the plan is under your agency, which it has to be to find out anything about it.

If the commission is not paid it is trousered by the insurer who does not enhance the benefits to the policyholder.

It is Alice in Wonderland stuff.

Steven_L said...

It strikes me as just part of a culture that encourages professionals to produce reams of false paperwork saying they have crossed various t's and dotted every i.

Whether it's accountants, conveyancers or financial advisors, it seems it's perfectly OK to get involved with all manner of frauds and scams (and I mean landbanking, pensions 'liberation' and all the other boiler room stuff) as long as you have completed the right paperwork.

The FCA called me a little while back for more info on a report I made against an IFA who was facilitating a pensions fraud. He'd applied more further authorisations. I told them I thought he was either a crook or too megligent to be an IFA and offered to send them all the evidence. They said because there was only the one complaint they wouldn't bother and would probably just authorise him.

They'll have had loads of complaints, just from people who didn't know enough about how the scam works to complain against the regulated person who was providing the 'tickbox' to say regulated advice had been given and remove everyone else's activities from the scope of the Regulated Activities Order. They don't seem to want to accept all these scams are facilitated by people they 'regulate'.

I hate them, I really do.

Dinero said...

If you replace the word "advice" with "recommend" then it make a bit more sense, but the kafkaesque consequences are the same.

Lola said...

D. Yes. But the regulationists also control the language so they conflate 'recommend' with 'advice'. Alice in Wonderland again - Humpty Dumpty - "When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less." "The question is," said Alice, "whether you can make words mean so many different things."

Lola said...

Steven_L. You should read up on the Connaught issue. Here, a bloke flew from USA to the UK at his own expense and went to the FCA with all the papers that proved that Connaught was a fraud and they just dismissed him. Sent him on his way, with disdain. Now that Connaught has failed the FCA are charging everyone else in the industry (i.e. the clients) for the compensation. Why aren't those responsible at the FCA being charged with their failure to act?