The FCA says its position on contingent charging remains as it set out in a 2013 thematic review, after a consultation paper on advising on pension transfers published today did not address it.
In today’s consultation, the FCA proposes scrapping the assumption that DB transfers are unsuitable and looks to shake up the way defined benefit transfer value analysis is conducted.
However, the consultation paper did not address contingent charging in relation to pension transfers.
A June poll by AJ Bell showed 50 per cent of advisers conducting DB transfers charge on a contingent basis while a quarter charge a fixed amount and 16 per cent charge on a time-cost basis.
Asked why contingent charging was not addressed in the report, FCA policy director David Geale says it was previously addressed in a 2013 thematic report.
Speaking to Money Marketing, Geale says: “We have addressed contingent charging before. We have considered this issue around the time of introducing the retail distribution review and we set out our views in a thematic report we published [13/5 in 2013].”
Geale adds: “Broadly it is open to firms to operate a contingent charging model, however we have made clear that we consider it to be a higher risk approach and firms that operate that model will need to ensure they have got adequate controls in place to manage those risks and any potential conflicts. That position remains as the position was before.”
Today’s consultation paper generated significant industry response, including Royal London policy director Steve Webb calling for the FCA to be clear about how far advisers giving advice this year should be taking account of the ideas in the consultation. The final rules are not expected until 2018.
In response, Geale says: “The rules are as the rules are currently. This is a consultation we don’t expect advisers to look at rules that are under consultation because we put them out for comment to see what people think.”
He adds: “What advisers should do is comply with the rules as they stand at the moment, they should be making suitable recommendations. Effectively what we are doing is strengthening and clarifying our expectations in this area. It is not completely new, we have always expected advisers to make suitable recommendations around pension transfers and reflecting the complexity of the transaction. I don’t think anything changes in respect of what they should do now.”
Geale adds: “What we would like them to do is use their experience to engage with the consultation and to offer us their views on whether we have pitched that right or if there are suggestions they can make.”
Asked why the paper was not released earlier, Geale says now is the “appropriate time”.
He explains: “The starting point is we have had rules on DB transfers. What we looked at is how the market has developed. Some of the dynamics have changed so we need to look at how the patterns of behaviour changed in order to make sure that what we consult on reflects the actual practice in the market.”
He says: “It was sensible to rely on the existing rules that are in place to see how the market develops, what consumer behaviour is like, what firms are doing and then to consider whether we needed to tighten or change our rules in any particular areas. That is what we have done and we are doing that now because it is the appropriate time to do it.”