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FCA mulls contingent charging ban for DB transfers

FCA executive director of strategy and competition Chris Woolard

The FCA is considering a ban on contingent charging for pension transfer advice.

The regulator published a consultation paper and a policy statement on pension transfer advice this morning.

The policy statement is the regulator’s official response to the consultation published in June 2017 where it made five recommendations to improve transfers.

The contents of the update confirms the FCA intends to carry out many of the measures it proposed.

These include the introduction of a rule to require all advice on the conversion or transfer of safeguarded benefits to result in a personal recommendation.

The majority of the remaining changes, which cover the transfer value comparator and the appropriate pension transfer analysis, will come into force on 1 October 2018.

The FCA has also published a consultation paper proposing further changes to its rules and guidance.

This includes requiring advisers undertaking pension transfer advice to have the same qualifications as investment advisers.

The FCA is also seeking views on whether it should intervene in relation to charging structures given the difficulty in managing the conflicts of interest that exist when providing transfer advice.

This could include a ban on contingent charging, which is when a fee for advice is only paid for when a transfer goes ahead.

Furthermore the FCA has decided to maintain the position, at this stage, that an adviser should start from the assumption that a DB pension transfer will be unsuitable.

This is to reflect the high proportion of unsuitable advice seen in supervisory work and need for further consideration of how transfer advice should be paid for.

FCA executive director of strategy and competition Christopher Woolard says: “DB pensions are valuable so most people will be best advised to keep them.

“However, where people are considering a transfer, it is vital that they get good advice to enable them to make an informed decision.”

Woolard adds: “We are also looking at whether further changes are needed to improve the quality of advice in this area.

“In particular, we recognise that there is an inherent conflict of interest when advisers use a contingent charging model so we are asking for views on whether we should ban contingent fees for pension transfer advice. DB pension transfer advice continues to be a key area of focus for the FCA.”

Money Marketing looked at what advisers thought the FCA should focus on in its policy statement back in mid-March.


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. I have mixed feelings about the contingent charging issue.

    On one hand I can see that this would remove the initial bias to transfer, however the ongoing fee would still be an incentive to transfer.

    I think this comes down to ethics and given we will never have the people on the ground to police the bias, this could be the only way. That said, I do feel for some that could benefit from a transfer but perhaps could not afford to pay a fee if the advice were no to.

    • Totally agree about the ethics – it doesn’t matter what is banned or what the rules are, somebody will always bend or break them. There isn’t a simple answer for this one.

    • Agreed on the ethics point. The irony is that those who have no ethics/skill/care will still get their money but the quality of advice won’t improve.

      Rules don’t solve these sorts of problems, they are political sticking plaster. The only real solution is for the FCA to get out there and root out these people one by one on the ground.

  2. I can see the headlines now… Adviser charges thousands to tell me not to do something! How wrong!
    The liability is in the advice not the transaction. Advising someone not to transfer and then finding years down the road the scheme enters the PPF with limited benefits below those expected from the scheme but without flexibity, Death benefits etc.. could find you defending the advice not to transfer!

    How many would be prepared to pay a commercial fee regardless of outcome that reflects the lifelong liability by the advising firm?

    Finally taking a fee upfront, then advising against it will raise the question of “shouldn’t your primary assessment” have arrived at the conclusion without going through the process with comments and claims that fees
    shouldn’t be charged. I see both sides… but regulatory statements are a must

  3. Christopher Pitt 26th March 2018 at 2:41 pm

    Advisers should be paid for the advice they give and the value they add. And surely it should be those clients that actually receive the advice that should pay for it. So, it makes no sense at all for those clients that are advised to do something are charged more to offset the cost of dealing with those clients that are told not to do something?

  4. Will all those at the FCA and FOS also have to have the qualification level described at 3.8 and 3.9 of CP18/7** ?

    If not why not?

  5. Hmm, I wonder what other ‘services’ currently provided free will in future have to be paid for. Transfer cost comparison for replacement business strikes me as one. Playing devil’s advocate, what about RIY calc (which includes the adviser’s fee and post MiFID II is arguably the responsibility of the adviser, not product provider?

  6. Geoffrey Hartnell 30th March 2018 at 3:50 pm

    The FSA/FCA have always stayed away from adjudicating on commercial decisions.
    If the ability to exercise one’s right to transfer one’s pension is restricted the market has to determine what the right price is for the job and ongoing liability.
    A report has a cost, no one can deny that, but the process of transferring and setting up the best solution for the client is actually a separate piece of work.
    When a transfer recommendation is made there may be mention of ongoing reporting/monitoring but it is part of the recommendation and not the actual role itself which is costed separately.

  7. John Donaldson 1st May 2018 at 4:39 pm

    One very real issue for the client is they are compelled to use an adviser. If the regulators really want to reduce the cost of advice, by promoting competition, then perhaps there should be an option where the client signs away all their rights to complain, and can carry out the transfer themselves without an adviser. Surely some adults should be allowed to make their own decisions about their pensions in the same way as they can blow an inheritance, or gamble away a lottery win without any protection from the state whatsoever? Discuss 🙂

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