Last week it was reported that the Government is against advisers applying “consultancy charging” to members joining an employer sponsored pension scheme under the new auto enrolment regulations.
At least one national newspaper referred to advisers charging “rip-off” fees and explained that as much as £450 of the first year’s contributions might be taken by the adviser.
There is no denying that advisers charge for their services; we certainly do and to bring a new member into a pension scheme where advice is provided to them about important subjects, such as which investment funds to choose, we would certainly charge a fee of this magnitude.
As to whether this fee is paid by the employee, the employer or shared by them then we are pretty agnostic on the subject.
The problem with such a pejorative term as “rip-off” is that it implies a huge benefit to the person doing the so called “ripping-off. But an analysis of what happens to that fee of £450 is I believe rather telling.
Direct regulatory costs are some 9% of that £450 or £40.50. So the employee is paying quite handsomely for the protection that most of us would agree they deserve.
A further 8% or £36 is the cost of the technology that we need to ensure product and investment fund research is carried out to a high standard.
8.5% or £38.25 is the cost of the office, things such as rent and rates utilities etc.
A substantial amount of the fee is the cost of staff salaries, National Insurance and income tax; in fact 47% or £211.50 is expended this way.
Professional fees for such services as our Accountant are 3.8% or £17.10.
Transport and petrol costs amount to a further 4.2% or £18.90.
As a limited company we have to pay corporation tax on our profits (and I am pleased to say that despite all these costs we do actually make a profit) 3.5% or £15.75 and finally the shareholders receive a dividend payment of 16% or £72.
As a firm we are constantly seeking ways to reduce our business costs but as all business owners will know, there is a point where further cost cuts are simply not possible.
So unless those commentators are saying that intermediary firms should be run as a charity I am afraid that £450 seems to me to be a very reasonable fee to pay for the required professional services and absolutely not a “rip-off”!
