Advisers are divided over the FCA’s decision to consider a ban on contingent charging for pension transfer advice, outlined in a consultation today.
The consultation – published alongside the FCA’s new rules on pension transfers this morning – has divided experts more than the policy statement.
It says the FCA will require advisers to manage conflicts of interest, including those created by contingent charging structures.
Given the potential harm to consumers from contingent charging, the FCA is considering if it is “necessary to intervene” in the market and ban the practice.
However, there was no consensus on whether a ban should be introduced, according to the advisers and experts speaking to Money Marketing.
Wingate Financial Planning director Alistair Cunningham argues the FCA had to come out in public with a position on contingent charging otherwise it would be criticised.
He says: “I cannot see how the FCA can legislate against contingent charging because conflicts of interest and biases are far wider than just contingent charging.
“The root cause of the problem [of bad advice on pension transfers out of a defined benefit scheme] is firms not acting in clients’ best interests so if FCA bans contingent charging people will work around it.
“I see why the FCA has launched the consultation because if it had not it would have been accused of doing nothing.”
Reacting to the policy statement and consultation, Delta Financial Management adviser Jarrod Ellis says: “Broadly we welcome the contents of the policy statement and firmly believe all transfers should have a personalised recommendation.
“It is welcome we are moving away from just a critical yield/annuity comparison-based system to a wider understanding of how a client will use these funds in future.”
Ellis adds: “Ensuring qualifications are up-to-date and relevant is also common sense due to changing legislation. Finally, on charging, this should reflect the work, professional fees and risks involved in the outcomes so there should be a flexible but fair approach.”
National advice firm LEBC public policy director Kay Ingram says: “We would support a ban on contingent fee charging for this advice. We cannot escape the conclusion that a contingent fee structure must inevitably bias the advice in favour of recommending a transfer.”
Standard Life head of financial planning propositions Alastair Black says: “The FCA is doing the right thing about consulting on contingent charging as the knock-on effects [of a ban] could be large.”
Aegon pensions director Steven Cameron adds: “Demand for advice on DB transfers has never been higher and the FCA has now set out clearly ‘what good looks like’ allowing advisers to meet demands from their clients with confidence.”