DB transfer charging models under pressure

How advisers charge for defined benefit pension transfers is being put under the microscope again as the regulator turns over more potential conflicts of interest.

With the British Steel Pension Scheme the latest to dominate headlines and the FCA ready to interrogate further as it extends its review to include all firms authorised to give pension transfer advice, case complexity and risk is forcing advisers to take a hard line when it comes to accepting clients and deciding on what to charge them.

There are currently 7,608 Personal Finance Society members with a statement of professional standing and a pass in at least one of the three pension transfer exams G60, AF3 or AF7, figures provided to Money Marketing by the professional body show.

Many will only take on pension transfer business for existing clients or charge significantly more for newcomers, however, while others will insist on a wider financial planning review process.

Blog: Where a collapsed DFM fits into the British Steel DB transfer web

Mazars chartered financial planner Natalie Wright says new clients looking for a standalone piece of transfer advice will be turned away.

She says: “If they are just looking at unlocking value and are not interested in the wider financial planning aspect, we are not going to take
them on.”

Wingate Financial Planning director Alistair Cunningham receives many enquiries from scheme members looking for a “tick box” exercise.

“They ring up saying a firm is trying to charge ‘X’ so they are looking for the lowest possible quote. They are probably not the clients for us.”

Typically charging a fixed fee, rather than hourly rate, Cunningham says: “Pension transfer cases would typically be £3,000 – more if there’s more than one pension under advice. More general, but non-DB transfer-related financial planning starts from £600.”

Addidi Wealth founder and managing director Anna Sofat also differentiates between new and existing clients, normally charging a fee for conducting the initial assessment.

“That fee varies, but we have set a minimum of £2,500. We used to charge £1,500 in the past but we found with the amount of work involved we were not even covering our costs. Having said that, £1,500 for an existing client may be acceptable but £1,500 for a new client is not.”

Sofat says there are other variables, such as the number of schemes the client is in, the level of familiarity with the scheme, and the ease with which you can deal with the provider.

“If it is a scheme we already know, we can be a lot more cost-efficient but with one we have not come across before there is a lot more work involved.”

LEBC The Retirement Adviser outsources its initial transfer analysis to O&M Pension Solutions, among others, for an average cost of £400 per case. In 2015 this was £175 per individual case.

FCA writes to advisers over ‘commoditised’ DB transfer processes

Transfer specialist HDIFA, whose permissions were temporarily suspended after an FCA audit, said it had updated its fees since they were previously reported, but declined to comment on the new structure.

LEBC splits its business into two types: project-based work where the trustee and employer pay for their services; and advising individual clients, who pay an upfront fee directly, whether the transfer goes ahead or not. The firm typically charges £2,500 for this review.

Managing director Nick Flynn says subsequent work for any review then needs to be priced “sensibly”, based on an hourly rate.

In terms of hours spent on follow-up advice, he says 15 hours per DB transfer case is about average.

“We have seen a lot of charging at 3 per cent or 4 per cent, which – if the value is around £200,000 – will be a reasonable amount. But if someone has £800,000 or £900,000 then it becomes a huge chunk of money and starts to look like commission, to be honest.”

He says the rise of contingent charging – the model through which an estimated 90 per cent of BSPS members chose to pay for advice, according to advice firm Active Wealth, one of the firms involved with British Steel transfers – looks set for greater regulatory scrutiny.

Flynn says: “If I recommend you to something and you do it, that is considered contingent or commission. Some people are happy to pay it but for me, it does not seem to be in the spirit of things.”

Sofat agress that if you have a lower upfront charge but a higher charge – say 3 per cent – on any transfer value, there is a bigger incentive to recommend a transfer out.

“We stick to 1 per cent, which will cover our cost base, but because the initial report fee is at fair value, we can walk away at the end of that with no concern either way if the transfer goes ahead or not.”

Fears grow over PI coverage for DB transfers

At Tenet, adviser charges average £150 an hour with regional variations yet group risk and regulatory director Caroline Bradley says most appointed representatives charge “industry standard” 3 per cent initial and between 0.5 per cent and 1 per cent ongoing, depending on service levels.

She adds: “Those charges might be discounted if the client has a particularly large portfolio, because a 3 per cent charge on a pension of £500,000 is £15,000 – a very large sum.”

The FCA has been investigating the role of introducers and has expressed concerns over the influence they could have over authorised firms, such as financial advisers.

Writing to work and pension select committee chair Frank Field earlier this month, the FCA reiterated it had concerns over working with unregulated introducers and lead generators.

For the BSPS, unauthorised introducer Celtic Wealth Management reportedly referred 76 scheme members to Active Wealth. With average fees per referral as high as £750, the total amount earned has been estimated as £50,000.

LEBC’s Flynn recalls scenarios where clients have paid an introducer to “find them an IFA” where both parties physically share an office.

“It strikes me as a money spinner. I would not have thought there was the need for an introducer; there is more business opportunity than there is good IFA capacity.”



Tisa shelves DB transfer guidance service

Tisa has dropped plans to introduce a defined benefit transfer guidance service, Money Marketing can reveal. Last summer Money Marketing reported Tisa was planning to trial guidance sessions for DB pension scheme holders who wanted to transfer out but fell below the £30,000 threshold for compulsory advice. Money Marketing understands these plans were shelved after issues around advice to […]

FCA logo glass 620x430

Another IFA pulls DB transfers after FCA review

Advice firm Bartholomew Hawkins has stopped its defined benefit transfers following a meeting with the Financial Conduct Authority. According to the FCA’s register the company must “immediately cease all regulated activities relating to defined benefit pension transfer business for which the firm has Part 4A permissions”. The register says the firm ceased work on DB […]


SJP stops accepting DB transfers from British Steel members

St James’s Place has confirmed it will no long accept new defined benefit pension transfer requests from British Steel members. At a work and pensions select committee hearing this morning, it was estimated that of the 38,000 British Steel members, 12,200 have applied for a transfer value and more than 2,000 transfers have been made […]


Govt shelves Brexit financial services paper

The chair of the influential Treasury committee has criticised the Government’s failure to publish a paper on the future of financial services after Brexit as sending “all the wrong signals”. The Government had previously promised to publish “sector impact assessments”, which have been repeatedly delayed. Indeed, in November last year, Brexit minister David Davis admitted […]


News and expert analysis straight to your inbox

Sign up


There are 4 comments at the moment, we would love to hear your opinion too.

  1. Anyone who takes on this kind of work needs to charge plenty to cover their future PI Insurance costs, along with FCA fees etc, not to mention the cost of providing the FCA with the information that they are about to request!!

    Also, if everyone thinks that there are going to be future PI claims, then they need to make sure that they can cover their PI excess for each case.

    With this in mind, you have to expect the fees that IFAs charge to represent the risk and associated costs that they are going to have to pay. A one off fee of £1500 or even £2500 is not enough!!

  2. I am with you Steven. Doing it at this level of fees strikes me as being unreflective of both the initial cost and the ongoing. 404 or 166 anyone? Then there’s when your PI Insurers decline cover for this in the future. As I have been banging on about. If you want to be and seen to be impartial as well as independent you cant charge contingent fees.

  3. The reporter of course means “Transfer specialist HDIFA, whose permissions *are* temporarily suspended after an FCA audit…”

  4. Contingent charging for DB pension transfers leads to bias. Because unless the transfer goes ahead the adviser doesn’t get paid. As such the adviser is not looking at the options available objectively and will tend to find reasons to recommend a transfer (unless it is totally blatant that it is not in the best interests of the customer) as that is the only way they will earn money.

    Even the blatant cases where a transfer should not be recommended suddenly become ‘insistent clients’ and the business is still transacted on that basis.

    The same upfront fee should be charged whether a transfer is recommended or not and then an additional fee could be charged for implementation if a transfer is recommended as being in the best interests of the customer.

    The FCA should not allow ‘insistent clients’ in relation to DB pension transfers as it is open to abuse. If the customer wants to go ahead against the advice they have been given they can do it themselves on a non-advised basis.

    Obviously it is difficult to get customers to pay upfront fees when other advisers are purporting to offer advice for free. However, most people know that there is nothing for free in this world and that if you want to receive good advice you have to be willing to pay an upfront fee for it, whether the recommendation is to transfer or not.

Leave a comment