First Actuarial business development director Henry Tapper claims “contingent charging is the root of all pension transfer evil”.
In a panel debate on DB Transfers: A 2020 View at Money Marketing Interactive today, speakers argued over the degree to which different IFA charging structures constitute a conflict of interest.
Lane Clark & Peacock actuary and senior consultant Damian Bailey put forward the view that even levying ongoing charges on a client’s portfolio creates a potential conflict as these earnings “are not insignificant”.
He says: “When you add up the annual management charges that are layered on top of fund charges and you think that they could apply for the next 15 or 20 years you are not looking at a 3 per cent charge of a member’s fund you are potentially looking at over 10 -15 per cent, so it is a big issue and yes there is a conflict.
“That is why when we sit down with trustees and take them through what the charging structure is of the IFAs we will be asking them.
“It is not for us to say don’t do it, it is just for us to point out that it is there.”
While Tapper says he is not against IFAs charging for ongoing management of funds post transfer, he is wholly opposed to advisers making an upfront charge from the client’s fund which is contingent on a transfer taking place.
He says: “All the people I know who are sensible serious people do not like contingent charging.
“I’m against contingent charging because it is all too easy for vulnerable customers to end up in the wrong position in a frictionless environment.
“Contingent charges are the root of all pension transfer evil.”
Intelligent Pensions technical director Fiona Tait argues against Bailey’s implication that ongoing portfolio charges post pension transfer constitute a form of contingent charging.
She says: “I don’t think there is necessarily a conflict of interest. The way that we work is it should be remuneration for work done so we do get ongoing service charges for managing the clients’ portfolios going forwards.
“It can be argued that Ok it is contingent because you wouldn’t get that if the client didn’t go ahead with the transfer, but we would say that we are getting it because of the work that we are doing.”