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

Agenda  What is AC/CC  Provider influence  Legacy Issues

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

In practice Adviser decides Commercial decision Product how much to charge client for their services Provider decides Commercial decision amount of AC/CC that their product can support Client decides: Personal decision  whether to accept adviser’s terms  where it comes from

Fee Charging Explicit cost agreed with client at outset 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 Client pays out of taxable income Net cost reduced by tax relief on pension conts Included in 5% tax-deferred income (bonds) Full 5% tax-deferred income available (bonds) Adviser Charging No need for client to make explicit payment Client writes a cheque!

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

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

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

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

Generic principles Source: A Shared Approach to Adviser and Consultancy Charging Jan 2012

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!!!

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

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

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

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

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

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

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

Scottish Life Game on star service Tried and tested administration 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 The ultimate default fund 3 year anniversary of Governed Portfolios An evening with Ian Robertson & special guests - 19

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. Important information 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 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 RL Corporate Pension Services Limited provides pension services and is authorised and regulated by the Financial Services Authority, registration number Game on 2012 (37PR0497) An evening with Ian Robertson & special guests - 20