When MPs on the work and pensions select committee launched a probe into contingent charging last month, they were well aware its inquiry would split the financial planning community.
Frank Field and his team want the practice banned, despite the fact half of advisers are estimated to conduct defined benefit transfers on that basis.
Responses to the consultation have now closed and show what a thorny issue contingent charges have become. Leafing through a few of the submissions, it strikes me as a huge oversight that the FCA doesn’t have better data on this, and that we have to rely on estimates from private companies.
We know the regulator found that 29 per cent of DB transfers were unsuitable in its latest review of the market. It should know how many of these were done on a contingent-charging basis.
For those where the transfer was unsuitable due to shoehorning into in-house funds, it should know what proportion of these transfers were charged on a contingent basis.
Only armed with this information can we make an iron-clad case for banning contingent charging or letting it slide.
Targeted intervention on vertically integrated firms with pattern behaviours would do more to ensure suitability than market-wide surveys of every adviser with DB transfer permissions.
I can’t help thinking that given the FCA’s overall approach on contingent charges is that advisers should be wary of the conflicts they could cause, this is one instance where a template disclosure of some sort might actually help – something along the lines of “just to let you know, this could be great advice, but I am going to get paid more if you take this recommendation than a different one”.
That would be honest and transparent for consumers who are still rightly worried that, particularly when it comes to DB transfers, they aren’t in a position to judge their adviser’s integrity.
The main reason contingent charging advocates remain wedded to the model is access to advice. Scores of consumers who could benefit from a DB transfer will be instantly put off when asked to fork out thousands in fixed or hourly fees, with even greater numbers turned off advice for life by paying, only to be told to stay put.
But I think that if you can’t afford a few grand up front, you’re highly unlikely to be a suitable DB transfer candidate anyway. Do you really have the capacity for loss? Would you likely have other assets to fall back on?
More importantly, is it not the true hallmark of a profession that it is remunerated for its skill and expertise regardless of outcome?
It’s why British doctors are far more respected than their American peers, for example.
Instead of balking at Field’s probe, advisers should be taking a look at their own practices to ensure they really are clear of his critique.