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FCA director: ‘We have made it clear contingent charging is higher risk’

The FCA published its consultation on advising on pension transfers this morning


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.”

Time for the FCA to be honest on DB transfers

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.”



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There are 28 comments at the moment, we would love to hear your opinion too.

  1. Contingent charging is high risk full stop. Keep to the moral high ground regarding impartiality and get paid even if someone doesn’t proceed.

  2. “contingent charging is higher risk”

    Has anyone told many of the platforms that still charge as a percentage. Or the stockbrokers and indeed the Regulator itself, as they charge pro rata the amount of business transacted.

    • Platforms and regulators don’t give advice so there’s no conflict of interest.

      • Are you saying then, by removing contingent charging you are removing conflict of interest ?

        But that conflict of interest is always there ! (however marginal it may be)

        Irrespective of how we get remunerated !

        Percentage, fixed/transnational fee, or time charge !

        David Geale, FCA and some industry experts are again searching for things that are just not there

        What you charge and how you charge, has nothing to do with the advice or the quality of that advice, trying to link and demonise percentage transactions by way of saying you are getting ripped off and had bad advice is false, as those people who are driven to do this, will do it any way, and are doing it, because charging a fixed fee or hourly rate on sale or no sale doesn’t make the slightest bit of difference

        Advice is and will always be the risk !

        Like most things the FCA do, its all about “collective punishment” (which is a crime under the Geneva Conventions act 1949)

        Everyone pays for the wrong doing of the few, and its unfair we are punished (collectively) for things we have no control over…….

        • “What you charge and how you charge, has nothing to do with the advice or the quality of that advice”

          Patently not true. Any system of remuneration that rewards a particular advice outcome presents, de facto, a conflict of interest. Some will resist this conflict, others will not. Contingent charging contains an inherent conflict and is therefore higher risk than non-contingent charging.

          Of course advice will always present a risk but why add to it by setting the interests of the client at odds with those of the adviser? Eliminating risk is not possible, reducing and controlling it is and that’s what this is about.

          To answer your question, it follows that removing contingent charging will either remove conflict of interest or drastically reduce it.

          I have no idea what any of this has to do with collective punishment and the Geneva Convention any more than it has to do with responsible ownership and the Dangerous Dogs Act so I can’t help there I’m afraid.

          • Your wrong I’m sorry to say !

            One simple fact, one may charge 2% for advice given, one may charge a flat fee, one may charge a time charge ….based on two outcomes

            Client is recommended to do nothing …. all the above charging structures apply, 2,; client is advised to invest … again all the above charging structures apply
            Please tell me the extra risk contingent (percentage) charging has had over the other two ?
            Now from a personal and business standing…. my percentage fund based charges mean my business is profitable “without” the need to even write new business or advise new clients !
            That’s why I don’t entertain new clients unless recommended by existing client
            Now is that more risky than the feast and famine that will happen on flat fee and time charge resulting in 50/50 advice ?

            And ipso facto conflict of interest could be apparent in all three even if it is just to earn money !

            Now one thing that may happen and happens a lot said client who wants to go with the recomendation to invest has no spare cash to pay ! So charges are taken from the investment and or deducted from said investment and paid to the adviser ! Now that’s the same for contingent, fee, or time charge

            As for collective punishment the few who and will continue to pose a risk to the consumer will continue to do so irrespective, now the FCA will use collective punishment on all of us

            As for the dangerous dog ….. well he or she has a damn sight more rights than we do …

            Advice is the risk not the charge !

          • Can we be a little more specific. Are you (and the regulator) maintaining that a percentage charge is higher risk because the adviser will press for a higher investment? But in which case isn’t in the advisers interest as well as the clients to see that the investment grows as much as possible? £1k turned into £5k benefits both parties.

            Indeed fund managers also charge by percentage – they give advice (please buy my terrific fund) every time they hold a seminar.

            Is charging by the hour that much less risky. I might do in an hour what it would take someone else 3 hours and how do you categorically prove exactly how many hours you have actually worked – assuming the charge is for each 15 mins.

            Basically it isn’t a matter of risk, but a matter of trust. Doe the criticism of percentage charging imply dishonesty? If so please clarify. (Or am I being dense?)

          • Sorry Grey I forgot to address this little doozy….

            “Any system of remuneration that rewards a particular advice outcome presents, de facto, a conflict of interest.”

            Tell me then we advise we get paid, how do you differentiate from contingent, fee or time charge ? weather a sale is made or not ?

      • And stockbrokers?

  3. So the FCA is making pension advice more costly ..

    • Julian Stevens 21st June 2017 at 6:58 pm

      I don’t think so. It’s merely saying that getting paid for the provision of advice shouldn’t be contingent on selling something (because that’s not really advice, is it? At least not truly impartial advice).

      You know, the way it’s apparently happy for SJP to operate.

    • Julian Stevens 21st June 2017 at 7:10 pm

      In fact, were the FCA serious about addressing the issue of contingent charging and forcing the advice profession to be an advice profession, it would mandate that no more than twice the pre-sale advice charge could be taken upon completion of the sale itself. But, I predict, that’ll never happen. The banks wouldn’t be able to handle it for a start.

  4. I have to disagree with David “the appropriate time” for this was well over two years ago. To expect any rule changes in 2018 reinforces the widely held view that the regulator is far, far too slow. C- I am afraid

  5. Why is the FCA so worried about IFAs making more money than they think they should. Nobody appears worried about the treasury helping people rob their own pension funds without proper advise. The treasury wants the tax on pension surrenders, much worse tha DB transfers. All complete rubbish. No one speaks the truth these days, all frightened of upsetting someone. Well it has to happen sometimes.

    • Julian Stevens 22nd June 2017 at 1:04 pm

      I’m not sure the FCA is concerned about how much money authorised intermediaries earn. Rather, (so it would have us believe) it’s concerned about the guise under which they make their money, e.g. claiming to be an adviser when in reality anyone who gets paid only if s/he sells something. That’s not being an adviser, it’s being a product flogger.

      But, given that the FCA appears to be entirely unconcerned about the likes of SJP operating on EXACTLY this basis (and being allowed to call their partners advisers), nothing’s likely to change, is it?

      If your concerns are genuine Mr Geale and certain parts of the intermediary community are ignoring them, why don’t you do something about it?

  6. Grant Mitchell 22nd June 2017 at 9:32 am

    Is contingent charging a critically high risk when its 4.5% (along with an exit penalty for 6 years for good measure) as opposed to just high risk if its 2 or 2.5% for the very same work. Does that risk consider that 4.5% is for restricted advice and the lower amount for fully independent advice…..over to you SJP …..sorry I meant over to you FCA

  7. Higher risk != high risk.

    A sloth is faster than a turtle, but neither are fast.

  8. I find this comment coming from the FCA a little intriguing since in many ways they regulate by contingent charging. A product is linked to a fee which is actually the client’s money paying for more than just the advice for the product!
    Contingent charging belongs to the dark ages and advisers should be more honest and say my advice is £x regardless of whether I may advise you take out a product. Set the standard, do not follow other “professions”.

    • True but the difference is that the FCA don’t give anything in return, nor purport to do so…

      • Indeed, but I always charge- whether or not a transaction takes place. I charge for the advice and then if appropriate take a modest percentage of the fund under management. The risk here is that the perceived advice gap gets wider as I won’t deal with time wasters and they wont deal with me because they are used to getting ‘free’ advice via commission. In other words these people are the ones pushing contingency advice in this context.

  9. David Cathcart 22nd June 2017 at 5:18 pm

    If you banned contingent charging, I would suspect you would also significantly reduce the number of insistent clients.

  10. Contingent charging is only higher risk if the advice being given is bad. If the FCA believe that advisers are competent professionals capable of giving best advice then it does not matter how they charge. On the other hand, if they don’t believe this to be the case, then should they be treating the symptoms or the cause?

  11. Contingent Charging is VAT exempt so that is a benefit/Saving to the Client

    it not “How” the charge is made made its the amount charged and the work done that with “Some” advisers is still not joined up,

    I have seen 3% initial and 1% ongoing and advised a Prudential Prufund cautious and that was on £100,000 investment, to me that does not appear to be good Value for the work done

    • All depends on the clients expectation. For example if that £100k you spoke of had been on deposit from 2008 to 2013 and the client had been getting 0.47%pa then invested from 2013 to now the client is likely to have received around 4.9%pa net of all charges/fees. The client may well ecstatic. We should not judge what others do, how they do it and how much they charge for it. Its none of our business

  12. Sorry to bring this subject alive again, but all this talk as to whether or not the FCA will insist advisers take a different approach to charging is frustrating. Especially in light of the recent articles around the FSCS and the amount paid out due to unregulated products. Priorities gone mad! I think some of the responses In this article are getting confused between contingent charging and ad valorem charges. If the client knows what they are paying in pounds and pence then they are able to determine whether they feel they get value for money or not. If they do not they can cancel certainly their ongoing fee. I do believe contingent charging has a place even in DB transfers!!

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