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DB transfers: Half of advisers use contingent charging

A survey of advisers has revealed that half still charge on a contingent basis for defined benefit pension transfers.

A poll conducted by AJ Bell shows that 50 per cent of advisers conducting DB transfers are getting clients to pay for them by paying a percentage of the transfer value, and only receive payment if the transfer goes ahead.

A quarter charge a fixed amount and 16 per cent charge on a time-cost basis.

Contingent charging, where fees are dependent on a product sale or particular recommendation, has been on the FCA’s agenda for a number of years. Figures including former director of long-term savings and pensions Nick Poyntz-Wright and chief executive Martin Wheatley both expressed concerns over the practice while at the regulator.

While the regulator’s current guidance says that contingent charging is a “higher risk” approach compared with time-costing, and that “firms operating contingent charging should ensure they have adequate controls in place to manage this risk,” it has not given any more specific instructions with regard to the potential biasing effect the practice could have on DB transfer recommendations.

Are the days of contingent charging numbered?

At a conference organised on DB transfers yesterday, former FCA technical specialist Rory Percival said he would “seriously suggest” advisers move away from contingent charging models to those that charge for advice, not execution.

AJ Bell head of platform technical Mike Morrison says: “A lot of the DB transfer process can be affected by behavioural bias. Post-RDR we must remember that ‘advice’ is the product and that advice not to transfer could and will be for many the most suitable outcome.  This is particularly relevant where advisers are operating any form of contingent charging.”
Why contingent charging on DB transfers just won’t cut itThe AJ Bell survey also reveals that 79 per cent of advisers believe that critical yield calculations should no longer be based on annuities, and 70 per cent would not transact on behalf of an ‘insistent client’ who wants to transfer against advice.

Advisers also shed light on how they conducted their DB transfer assessments:
  • 67 per cent will only do so as part of a full financial plan.
  • 89 per cent carry out an initial triage process to determine whether a full transfer process is appropriate.
  • 99 per cent carry out a full attitude to risk/capacity for loss assessment.
  • 76 per cent include cash flow modelling for the client as part of the transfer assessment.



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There are 17 comments at the moment, we would love to hear your opinion too.

  1. matthew taylor 20th June 2017 at 9:05 am

    More encouraging to learn that 89% of advisers complete an initial triage process to determine the transfer. Which would lead me to conclude that the majority of the 50% who are contingent in their charges have already assessed the appropriateness of the transfer based on the fact that they may well walk away (without being paid) if they felt it was not in the clients best interest in the first instance?

    The other 11% must be order takers/transaction advisers? Good luck to you.

    1% of advisers don’t complete an attitude to risk/ capacity for loss on the transfer – they are clearly taking the mickey out of the survey…surely? Critical Yield 13% and cautious investor anyone??!!

  2. 99 per cent carry out a full attitude to risk/capacity for loss assessment.
    Can we separate these two as they are not the same thing albeit interrelated. I would suggest that of the 99% that assess ATR, much fewer do not assess Capacity for Loss properly, a concern expressed many times by the FCA and by Rory Percival himself. There is in fact imho a lack of guidance here from the FSA. “While attitude to risk is an important consideration, suitability is not just about making investment selections that reflect a customer’s attitude to risk”

  3. The bulk of the value we add on this subject must surely be in the advice provided rather than the implementation. But that is not to say that there is no value in the product. It does seem also that advice not to transfer is equally as valuable as advice to transfer

    Contingent charging doesn’t seem to fit well with us type of service

    As an aside is “bias” the new buzzword we have to put up with?

  4. How can we call ourselves a profession if half do this work on a contingent charging basis? It would appear that 50% don’t value their own time and expertise. How depressing.

    Looking more closely at the numbers, I’m a bit confused. The article says that 50% do it on a contingent basis and “a quarter charge a fixed amount and 16 per cent charge on a time-cost basis”. Are the other 9% doing it for free?

  5. I would suggest strongly there would be greater criticism if advisers charged full fees to clients to just state they do not advise and refuse to transact a DB Transfer.
    There is a balance that needs to be considered between the cost of research, guidance to the consumer and finally advise and transaction. The real cost and liability is at the actual advice and transaction stage. I would suggest a reasonable fee payable to complete research and guidance to a point at which an adviser and client feel it would be in the clients interest to consider a transfer would be fair (which is our offering), at which point contingent charging based on value and liability has to be acceptable to complete the advice process and transact or at least considered fair practice. The adviser at this stage after all is undertaking a life time of liability with little to no appeal process.

  6. Gosh Mr Percival even looks like a modern IFA, short haircut and no tie. Although out of shot, he probably has a Costa Coffee in one hand and his laptop in a rucksack!

  7. Charging ?

    Am I missing something here ? but I cant for the life of me work out, how or what we charge for advice, has anything to do with the actual advice ? and how the FCA has come to conclusion that percentage charging (contingent) is more risky that a time based charge ?

    If the advice is sound or indeed not ! what has, how much you charge, or in what way you charge going to effect it ?

    I could give advice for free and it could be seen as good and indeed bad, I could charge £250 an hour or 3% and the same applies that advice could been seen as good or bad ?

    If an adviser uses the sale of a product to produce income, how is the way he or she charges then converted to risk (as the FCA would have us believe)and determines if the advice was bad ?

    The advice is either sound or risky, or good or bad irrespective of charge or the way its charged….

    It seems to me that it more to do with opinion.

    If I (as an instance) charge a percentage for the advice and recommendation is my “advice” automatically deemed bad and risky compared to an adviser who charges a flat fee or an hourly rate ?

    What is the focus here from a regulatory perspective “advice” or charges and the way we charge ?

    Are advisers using time based charges as a “get out of jail free” card ?

    In my view focus on the advice because if its crap you will get found out ! irrespective of what you charge…. if someone keeps bleeting on about the way you charge or indeed how much, is just their opinion and really got sod all to do with them its between you and your client !

  8. I think Nick nailed it on the head here. Separating advice from the product allows your advice to stand on its own.

    What if the best course of action was that the client did nothing/stayed where they were?

    How would you get paid???

    The risk is the adviser then recommends something not in the client’s best interest just so they can get paid.

    • What if the best course of action was that the client did nothing/stayed where they were?

      How would you get paid???

      ** you charge them for the work done pro rata, if you don’t then you are a fool

      The risk is the adviser then recommends something not in the client’s best interest just so they can get paid.

      ****Then the “advice” will be wrong, it has nothing to do with how much is charged or the way in which your time was charged

      Linking charges to advice is madness, there is no correlation in advice to charges one does not effect the other !

      • ‘Then the “advice” will be wrong, it has nothing to do with how much is charged or the way in which your time was charged’

        I didn’t say the advice would be right, I said it was a risk that exists – particularly when the client doesn’t see the value in being told to do nothing because the firm hasn’t positioned the advice charges clearly upfront.

        • Absolute rubbish ! Matt

          Everytime I cross the road I take on risk, and I do it for free, this will not, and does not change even if I was charged a pound everytime, to do so

          A client is at risk from advice “not” what they get charged … be that a percentage or a time charge, the very real point is…. some people will take it upon themselves to make public, that was too much to pay or the wrong way it should be charged… and that me old mucker is an “opinion” and irrelevant !

          Risk is in the “advice” in whatever guise that takes, should that be, to stay or go, NOT a communication issue as you suggest !

          • I’m not sure why you keep flying off on individual elements of what i’m saying rather than the whole point in context.

            In some circumstances, particularly DB transfers with people who are not ‘typical’ advised clients – Less professional Advisers might see the only opportunity to make money from them is to incorrectly recommend a course of action that results in them being able to charge a fee that appears to justify their advice.

            To be clear, the advice risk stems from poor advisers seeing poor advice as the only way to justify the fee.

            This wont apply to most genuine advisers, its the cowboys who are not willing to spend time upfront justifying the value they provide. Its a risk present in the offices of ‘transactional’ advisers who’s interests are not aligned to the clients.

          • I am flying of on the individual elements because they are wrong and flawed, which in turn makes the context as as whole skewed !

            And to correct you again you make sweeping statements that imply those advisers (or vast majority) who contingent charge are “less professional”, “cowboys” who’s interests are “not aligned to the clients”

            Your argument is rubbish as the two are not mutually exclusive, (contingent charging and the calibre of the adviser)that again is just your “opinion”

            One question ? why do you change tack to say “transnational” advisers; again do you believe and think all advisers who charge a percentage do so on a transnational basis ?

  9. Wasn’t RDR based on ‘hearsay’ that there was commission bias and when challenged the FSA actually admitted they couldn’t find any evidence to back this up? Are they again highlighting a ‘risk’ without having any empirical evidence?

    I wonder if the FCA has actually surveyed the public and asked them how they like to pay for advice on DB transfer recommendations.

  10. The issue is that there is behavioural science research that demonstrates bias (to use the current buzzword!) will creep into a decision process where there is an incentive to act one way or the other. The argument is, therefore, that if and adviser only gets paid if a transfer is recommended, said adviser will sub-consciously attribute greater weight to those factors that point in favour of a transfer, and lesser weight to those that point against a transfer. The issue, of course, is that because this is done sub-consciously, they won’t be aware it is happening!

    • So …..
      How does this differ then if it’s a percentage ( contingent) or a fixed fee ?

      Where the charge is explained to the client as ( for example) I will charge you for advice on your 100k this will be £3000 or I will charge you £3,000 (3%)

      Now both could be examples of getting paid if the client acts on your recomendation ?

      This does not effect the advice on weather is suitable or not …. it can’t, or indeed if recomendation is to do nothing ?

      May I suggest the problem lies with relying on a transaction is the issue with your argument in order to be paid ?

      Now that is advice risk not attributed to charges !

  11. Whilst I do not like comparing, a solicitor charges you to offer a detailed explanation of your case, it cost a lot more to go to Court.
    A fee to explain option, advantages and disadvantages, complete basic research at a fixed costs I will accept is reasonable. It gives the client and adviser the chance to explore options and if the is a viable plan.
    When it comes to full advice and transaction, I cannot see how you can not build in the cost of liability of future claims, complexity of management.
    However, if you have completed the above process, would the regulator conclude this is contingent charging?

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