Pension Schemes Bill




1. The Association of Professional Financial Advisers (APFA) fully supports the Chancellor's belief that greater flexibility for consumers at retirement is a good thing and welcomes the government’s commitment to implementing the guidance guarantee. We also believe that regulated financial advisers have an important role to play in making that vision a reality. However, we are concerned about the current proposals for funding the guidance guarantee, and the adverse impact they could have on advisers and consumers.

APFA Submission

2. The guidance guarantee is to be paid for by means of an annual levy on the financial services industry, with HM Treasury setting the amount required. The FCA is considering how that levy should be allocated across the industry. Under its current proposals, financial advisers could be allocated as much as 30% of the total cost.

3. Most advice firms are small owner-managed businesses, and any increase in costs is likely to be passed on directly to their clients. At a time when much is being made of the need to increase access to advice, hitting the adviser community with an additional levy to fund the guidance guarantee will therefore increase the cost of advice generally and hit all consumers. This is contrary to the government’s stated policy intention of making regulated advice more affordable and undermines the aim of the guidance guarantee: to encourage people to seek help with their retirement planning.

4. It is therefore important that any method that is adopted is fair and reflects the relative sizes of the different sectors and their ability to fund this extra levy. It is disproportionate to allocate as much as 30% of the cost to the financial advice sector, where turnover and profits are a fraction of those of the banks and life companies. By way of illustration, the 2013 operating profits before tax of Aviva’s UK & Ireland life business were £952 million - which is equivalent to the aggregated profits before tax for all financial advice firms. This gives some idea of the relative scale of the different sectors, where one life company alone can make as much profit in a year as the entire financial advice sector.

5. APFA is therefore asking the FCA to reconsider its levy proposals, and to use a method that better reflects the relative size of the different sectors. To ensure costs are kept low, so that advice is affordable for as many consumers as possible, we believe the legislation should include a requirement that the guidance guarantee levy is allocated in such a way that it does not increase the cost of advice to consumers. We propose to put forward an amendment which will constrain the relevant levy raising powers in this way.

6. More information is contained in the attached annex. We hope that you will support the adviser community in its efforts to ensure that regulated advice is made affordable for those consumers who want it and would benefit from it.

October 2014


About APFA

7. The Association of Professional Financial Advisers (APFA) is the representative body for the financial adviser profession. There are approximately 14,000 adviser firms employing 81,000 people. 40% of investment and protection products are sold through financial advisers, with annual revenue estimated at £3.8 billion (£2.2 billion from investment business, £1.2 billion from general insurance and £400 million from mortgages). Over 50% of the population rank financial advisers as one of their top three most trusted sources of advice about money matters. As such, financial advisers represent a leading force in the maintenance of a competitive and dynamic retail financial services market.

Background information on the FCA funding proposals

8. The FCA is proposing that the levy to fund the guidance guarantee should be allocated to those firms that would potentially benefit when consumers go on to purchase financial products and services. It suggests that banks, building societies, life insurers, portfolio and fund managers and financial advisers are the sectors that will benefit.

9. Having identified the sectors that should share the costs, the FCA has proposed three options for allocating the additional levy:

i) allocate in proportion to the existing FCA fees allocation. Under this option advisers would pay 30% of the cost (the largest share of all the sectors – see table 1 below);

ii) allocate equally. Under this option, advisers would pay 20% of the cost;

iii) allocate in line with consumers’ retirement choices – no figures available, as currently no data available to indicate what financial products and services consumers choose on retirement.

10. A small proportion of consumers sought advice on annuity purchases in the past, and whilst guidance may raise awareness of the options available, there is no guarantee that consumers will seek regulated financial advice going forward. ABI figures show that, in 2013, the average (mean) annuity in 2013 was bought with a pension fund of around £35,600, but the median was around £20,000, so half of people buy an annuity with less than this [1] . The reality is therefore that for the majority of people retiring, it is unlikely that paying for regulated financial advice will be economic, given the size of their pension fund. To increase the cost of advice will therefore only make it even more difficult for people who want regulated advice about their retirement options to access it.

11. To put the relative size of the financial advice sector into context:

· the aggregated amount of profits before tax in financial adviser firms in 2013 totalled £953 million [2] ; and

· the aggregated amount of retained profits in financial adviser firms in 2013 totalled £128 million2.

[We include both because the vast majority of adviser firms are small and the principal adviser is the owner, and therefore pre-tax profits seem higher than they are in reality, as they need to cover the cost of owner/principal adviser’s salary.]

13. By way of contrast, the 2013 operating profits before tax of some of the larger life, pension & investment companies are as follows:

· Aviva plc (UK & Irish Life business) £953 million

· Lloyds Banking Group (UK Life, Pensions & Investments) £802 million

· Prudential (UK life & pensions business) £710 million

14. These figures help illustrate the relative sizes of the different sectors, and the disproportionate allocation of costs currently proposed by the FCA, which we believe needs to be addressed to avoid increasing the cost of advice for consumers.

Table 1: FCA proposed allocation of guidance guarantee costs

(Assuming annual levy of £20 million)

FCA Fee block


FCA’s basis for allocating fees

("Tariff base")

Tariff data 2014/15

Option 1

Option 2






Deposit acceptors

Eligible liabilities (i.e. deposits)







Insurers – life

Gross premium income







Portfolio managers

Funds under management







Fund managers

Gross income







Advisers, dealers or brokers

Annual income






[1] Association of British Insurers - The UK Ann uity Market: Facts and Figures

[2] APFA - “The Financial Adviser Market: In Numbers”:


Prepared 29th October 2014