NEST charge proves folly of Basic Advice - Sesame

A 2% contribution charge levied on members of NEST suggests the FSA's Basic Advice scheme will fail, Sesame says.

The IFA Network says it "doubts" Basic Advice - designed for consumers with straightforward financial needs - will appeal to members of the public, adding it finds it "ironic" the Government appears to have come to a similar view by setting NEST charges above the 1.5% cap on stakeholder products.

Last week, the FSA announced it would retain Basic Advice for stakeholder products. It will fall outside the regulator's adviser charging rules but come with a caveat to describe it to clients as a ‘restricted' service.

Members of NEST will be charged 0.3% of their funds each year as well as a temporary 2% levy on contributions to cover its start-up costs.

In its response to the FSA's Policy Statement ‘Delivering the RDR, Sesame says: "We doubt that, under current regulatory conditions, basic advice can be made attractive.

"Indeed, we find it ironic that NEST appears to have come to a similar view by having to set its charge above the level allowed on stakeholder products offered by the industry."

Despite surmising to retain Basic Advice, the FSA says it will keep its position "under review" as it recognises some the issues some critics have with it.

These included the capped charges that had constrained its commercial attractiveness, the low level of demand from consumers in the target market and a reluctance by firms to accept the liability risks.

Sesame says the RDR's key objective - to improve consumer access to advice - has "disappeared".

"We are left with a set of proposals that appear to be focused on minimising the risk of mis-selling. But, given the relatively low level of mis-selling in the IFA community, we believe changes being made to protect the few will instead hurt the masses."