A shared Approach

1. A shared Approach Presented by Fiona Tait ACII FSFA I Business Development Manager Adviser & Consultancy Charging Options

2. Agenda • What is AC/CC • Provider influence • Legacy Issues

3. Definitions 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 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) Charges should reflect the service being provided, rather than the particular provider or product being recommended Source: FSA Factsheet SFDFS056 05/11

4. In practice Post-RDR terms of business agreement Provider decides Adviser decides Product amount of AC/CC that their product can support how much to charge client for their services Commercial decision Commercial decision £ Advice Charge Instruction (poss. Part of application form) Advice Charge Agreement(poss. part of client agreement) Client decides: • whether to accept adviser’s terms • where it comes from Personal decision

5. Fee Charging Adviser Charging Explicit cost agreed with client at outset Explicit cost agreed with client at outset Adviser can receive full amount up front May have to be paid over time (regular contributions) Client pays out of taxable income Net cost reduced by tax relief on pension conts Full 5% tax-deferred income available (bonds) Included in 5% tax-deferred income (bonds) Client writes a cheque! No need for client to make explicit payment

6. Cashflow planning • Payment options (1) Note - this is subject to provider agreeing to offer these terms

7. Cashflow planning • Payment options (2) Note – this is subject to provider agreeing to offer these terms

8. Adviser Charging Consultancy Charging Explicit cost agreed with client at outset Explicit cost agreed with employer at outset Can cover initial set up costs plus ongoing services if provided Can cover initial set up costs plus ongoing services if provided Only 1 client to consider Costs will be spread across scheme membership Legacy issues for pre-RDR plans No legacy issues for pre-RDR schemes Some clients may by charged both!

9. A Shared approach to AC and CC • High level principles • Starting and stopping AC/CC • Changes to adviser firm

10. Generic principles • The AC agreement is between the client and the adviser firm, not the adviser. • The CC agreement is between the employer and the adviser firm, not the adviser. • AC/CC taken from pensions can only pay for advice and services on pensions. • Providers will communicate to the market the products through which they will facilitate AC and CC, and the AC and CC structure available for these products. • Before any AC or CC can be facilitated, the adviser firm and the provider need to re-agree terms of business. • AC/CC instructions will capture any initial, ongoing or ad-hoc AC/CC and stipulate that it will be the gross amount (i.e. including VAT). The CC instruction can be at scheme or at individual level. • Providers do not require information with regard to AC/CC which they are not facilitating. • The provider will comply with AC/CC instructions once validated, in a timely manner. • Advisers or employers will communicate services/changes to services being provided to the client or individual, in a timely manner. • Adviser will keep their own VAT records for AC/CC. Providers will not keep these records. Source: A Shared Approach to Adviser and Consultancy Charging Jan 2012

11. 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!!!

12. Menu of Services “Intermediation gateway” VAT exempt Gather information about the customer (fact-find). 1. Fact find VAT-able 2. Research VAT-able Carry out research to find suitable investment options Provide the customer with reports, financial health-checks, forecasts VAT-able 3. Report VAT-able Recommend specific investment products to the customer, including the prices at which these can be arranged 4. Recommendation Act between the product provider and the customer with a view to arranging the sale of the Retail Investment Products agreed with the customer 5. Intermediation 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. 6. Ongoing reviews VAT-able? Source: ILAG revised HMRC guidance on VAT post RDR

13. Legacy issues – individual policies • What are legacy assets • When must AC be used • When can commission continue

14. Which means that Pre-RDR policies will incorporate two separate charging structures Ongoing commission • Increments Post-RDR payments Paymentswhich are made as the result of advice given post-RDR must be remunerated via Adviser Charging Premium level £ AC Increment Trail commission Pre-RDR payments Commission may continue on paymentswhich are made as the result of a pre-RDR contract Ongoing contributions 1 Jan 2013 Timeline

15. Ongoing commission • Contractual changes Which means that Portfolios which include automatic rebalancing at outset can continue to pay ongoing commission Premium level £ Trail commission Escalation Commission may continue on paymentswhich are made as the result of changes which are part of a pre-RDR contract Ongoing contributions 1 Jan 2013 Timeline Note - This also covers outstanding initial commission

16. Which means that If directly-held investments are switched future payments must be made via AC Ongoing commission • Fund switches • Life Policies: • 3 (1) a long term insurance contract; and • A long term care insurance policy • A pension policy Premium level £ Trail commission Fund switches within life policies do not create any new payments and renewal commission may continue to be paid Fund switch Fund switch 1 Jan 2013 Timeline Source: FSA Handbook – glossary entry “life policy”

17. Ongoing commission Which means that You will be remunerated for work done for new clients • Change of adviser Any new payments must be remunerated using Adviser charging Premium level £ Or it may be re-registered, with the client’s agreement, to the new adviser firm AC Increment Trail commission RC not re-registered RC re- registered Trail commission may continue to be paid to the original adviser 1 Jan 2013 Timeline

18. 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

19. Scottish Life 5 star service Tried and tested administration The ultimate default fund 3 year anniversary of Governed Portfolios Group Pension Provider of the year Co-branded support material Individual Pension Provider of the year Pay-as-you go options for drawdown and self-investment An evening with Ian Robertson & special guests - 19

20. Important information 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. 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. (37PR0497) An evening with Ian Robertson & special guests - 20