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Lib Dems join calls for contingent charging ban on DB transfers

The Liberal Democrats have called for contingent charging on pension transfers to be banned because it is “against the public interest”.

Stephen Lloyd, the Liberal Democrat spokesman for work and pensions, argues it is impossible for advisers to give impartial advice when the adviser only gets paid if the consumer chooses to transfer out.

This mirrors the conclusion from the report MPs on the work and pensions select committee produced on British Steel which said contingent charging should be abolished.

Lloyd says: “While the vast majority of advisers seek to act honestly and in the interest of clients, the distress caused to many British Steel pension workers recently shows that there are rogues in every industry.

“One of the roles of Government is surely to protect consumers from such sharp practice. This is especially true when people’s hard-earned retirement savings are at stake.”

He notes that many financial advisers have denounced contingent charging and the FCA have described the practice as “a higher risk approach.”

On the issue of contingent charging, as well as a plan to strengthen the ban on cold calling, Lloyd says the FCA are the only show in town in terms of their expertise in these areas “and shouldn’t feel they have their hands tied by politicians if they want to take action.”

He adds: “On the current Financial Guidance and Claims Bill wending its way through parliament, it is currently in committee stage, the Liberal Democrats have been pushing hard for all pensions and claims management cold calls to be banned.”

In mid-February National IFA also LEBC echoed MPs’ calls to ban contingent charging on defined benefit pension transfers.

Surveys suggest that half of IFAs are still charging on a contingent basis for DB transfers, however.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. To be rather more specific: One of the primary roles of the FCA (which, however much it would like us to believe otherwise, IS a branch of the government) is to protect consumers from sharp practice. Yet again, the FCA has failed to fulfil its responsibilities in this regard.

    Why is the FCA so unwilling to articulate just why it’s reluctant to ban contingent charging on business such as this, where the conflict of interest is so obvious? Having admitted that contingent charging for DPB transfers is high risk (as in putting clients’ best interests at risk), one wonders why on earth it’s failed to come up with any measures to address it. What’s going on?

    Whilst a total ban on contingent charging might be a bit heavy-handed (not that the FCA has ever, in the past, been reluctant to impose heavy-handed solutions to any number of perceived problems), might not a sensible and proportionate(a concept that the FCA seems to be constitutionally incapable of grasping) measure be to impose a PARTIAL ban, e.g. decreeing that advisers may not charge, in total, more than three times (or maybe even twice) the sum they charge for their pre-sale advice?

    After all, isn’t the very nub of this issue the fact that too many intermediaries are prioritising selling over advising? How can the FCA not see this and act accordingly?

  2. I sort of understand why they are reluctant to ban contingent charging. Many clients may not have the financial wherewithal to pay for advice which in many cases will be to not transfer. However they need the advice to understand this is the case (Catch 22). Without this only the rich will have the ability to receive appropriate advice (which to some extent due to previous regulatory actions is where advice is moving anyway).

    The answer is pretty easy. Legislate that if advice on this is required it can be taken from the DB fund by a relatively marginal reduction of benefits. Not contingent so not a problem.

  3. “While the vast majority of advisers seek to act honestly and in the interest of clients, the distress caused to many British Steel pension workers recently shows that there are rogues in every industry.”

    True. To stop the rogues you have to identify them and stop them. Banning contingent charging will have no effect, the rogues will just charge a fee.

    In addition, nobody seems to want to address the fact that an upfront fee doesn’t do away with the most lucrative contingency in this scenario, namely, the income stream from the ongoing investment after transfer. It’s almost worth doing the advice for free in exchange for the ongoing fees… assuming you are a rogue…

  4. The problem with the British Steel and the likes of advisers in that area are that they are ‘fast tracking’ them and not personalising the advice.

    Clients should have a pretty good idea if they want to convert the CETV to cash before even going to an IFA for advice. In other words it shouldn’t what’s best DB or DC, it’s personalising the advice with mitigating circumstances and good reasons that should qualify for transfers to take place. Not every Tom Dick and Harry should do it such as British Steel employees.

  5. David Cathcart 5th March 2018 at 6:57 pm

    Again MP’s courting public opinion and commenting on something they have absolutely no comprehension of.
    What do they mean it is “against the public interest”. It was the scheme trustees and actuaries that put the BS Pension scheme members in this position in the first place, not the advisory community. Yet I don’t see the MPs calling for their scalps. As usual it is the IFAs who take the fall because we are easy targets. The MPs are not going to pick a fight with the likes of Institute of Actuaries are they. Contingent charging is just another stick to beat us with, next week they will find something else – you bad, bad financial advisers with no powerful lobbying group, influential professional body or trade association.

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