MPs call for contingent charging ban after British Steel crisis

Frank Field accuses TPR of ‘fiddling while Rome burns’

The work and pensions select committee has called for a ban on contingent charging in a report examining how financial regulators have dealt with the British Steel pension saga.

In the report released this week, the committee blasts The Pensions Regulator and the FCA for their hand­ling of the “major misselling scandal” relating to the British Steel Pensions Scheme.

Committee chair Frank Field accuses TPR of “fiddling while Rome burns, when it should have seen this rip-off coming”.

Of the FCA, Field says he “can’t see much evidence of it working better for the people it is meant to protect” since it rebranded from the FSA.

FCA signposts pension transfer resources in adviser letter

The report calls for a ban on contingent charging, which it says is “a key driver of poor advice”.

It says the FCA must improve its online register of advisers and argues it would be “reckless” to drop the requirement for advisers to start from the presumption that a DB transfer is a bad idea.

The committee calls on TPR to conduct a review “learning the lessons of how [BSPS members] were let down”.

It says they were “shamelessly bamboozled” into moving their money to high-risk funds with punitive charges, and “exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called ‘introducers’”.

British Steel adviser explains ongoing charges calculation to MPs

MPs found there were 2,600 transfers out of the scheme worth a total of £1.1bn.

The average value was £400,000 but in around 20 cases it was more than £1m.

Members were charged advice fees of around 2 per cent and moved into funds with exit penalties as high as 10 per cent.

Field says: “I struggle to fathom how things like contingent fees are, or have ever been, considered an acceptable basis for providing ‘impartial’ advice on a decision like this. It is bad enough failing properly to enforce the rules there are, but
when the rules are this weak?”

He says: “Our financial services regulator has been rejigged and rebranded but
I can’t see much evidence of it working better for the people it is meant to protect: individuals making life-changing financial decisions.”

He adds: “To propose, as the FCA did in July last year, abandoning the adviser
presumption against transferring out of a gold-plated, stable, indexed
pension scheme: it really makes you wonder whose side they’re on.”

FCA deepens DB transfer probe through adviser questionnaire

Yesterday, a notice was published that Active Wealth, one of the advice firms at the centre of the scandal, had entered liquidation.

In response, the FCA says in a statement that it agrees with the committee that DB transfers are a “very important” issue and that it has been carrying out “considerable work” on DB transfer advice.

The statement says: “We have also taken detailed, extensive and robust action on the British Steel Pension Scheme to help steelworkers and we are pleased this has been recognised.”

It says: “We believe the committee’s recommendations are sensible. We are currently looking at the register to see how we can make it easier to use. We are also reviewing the rules that apply to firms advising on pension transfers, and will consider this report as part of this.”

“The FCA remains focused on ensuring consumers are protected.”

A TPR spokesman says: “We worked closely with the British Steel Pension Scheme trustee following the complex restructuring of the pension scheme which we approved in August last year.”

“We believe this was the best possible outcome for everyone involved in what was a very challenging situation. We also reviewed the communications sent to members by the trustee about their options and were satisfied they properly warned of the dangers of poor financial advice and scams.”

“We encouraged members of the BSPS scheme to engage with the consultation process. Our activities included taking part in a panel discussion event in Port Talbot last December, writing to all members of the scheme, and publicising the issues in the local press and on social media.”

The FCA and The Pensions Regulator are working on a pensions regulatory strategy to set out how they will work together to tackle risks to the pensions sector in the next five to 10 years.

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Comments

There are 22 comments at the moment, we would love to hear your opinion too.

  1. Hate to say this, but the only “funds” I am aware of with early exit penalties are SJP ones, does anyone know of others?

    • Duncan, the funds being referenced are the ones recommended by Active Wealth where there is a 5% exit penalty in the first year, reducing by 1% for the next 4 years.

      I’m no apologist for SJP but, on this occasion, the finger is not pointing at them.

      • OK, hence my question, maybe it did come across as finger pointing, although that was not what was intended. I must admit I am curious as to how any adviser these days is able to justify recommending a fund with early encashment penalties, given the variety and quality of ones without.

  2. Not sure why the DB scheme should be presumed to be best.

    Also not clear on the extent of the ‘Goldplating’.

    I have benefits in both a PCSPS clone and a PPP.

    The PCSPS is more secure, but growth wise the PPP is well ahead.

    This is just using standard UK and Overseas Equity Funds.

    • Not sure why the DB scheme should be presumed to be best.

      Ask yourself why they are no longer available or why employers are desperate to get rid of them – That’s why they are better than a DC scheme.

  3. Pension transfer specialists have had a field day over the past few years as transfer values have been inflated by the impact of low interest rates.

    The specialists have made serious money transferring schemes and I wonder if the higher levies resulting from their advice will be imposed proportionately on them, rather than across the board. They’ve been earning easy money – will I now have to pay for their advice?

    • Yes, that’s how the system works…

    • Clearly you’ve never provided quality pension transfer advice. It is not “easy money”. It is in-depth, technical and thorough work.

      • It is easy money – DB pension pots tend to be above average value and TVs are at inflated multiples because of low annuity rates. It doesn’t really get any easier than that.

        I don’t do DB transfers any more – I stopped many years ago because of the unpredictability of ongoing legislation – but I have detected a massive change in the past couple of years from the DB transfer specialists I refer to. Their fees and willingness to take on new cases have both gone up, which is what you’d expect when supply/demand factors are as favourable as they are. I have no problem with that, but I do have a problem having to pick up the tab for the rogue advisers who are running off with their ill-gotten fees while the FCA do nothing to stop them.

        The FCA simply doesn’t know how to deal with bad advice and I think it’s because they’re too busy telling us to tick meaningless boxes – Gabriel submissions aren’t even opened by the FCA, they have admitted openly! They need to focus on the rogues and just let decent advisers run decent businesses decently.

  4. Even though I do not agree with the contingent charging model, I agree even less with MPs or the regulator interfering with how a private business decides to charge for its services. This is the thin end of the wedge. As business owners we do not get hand outs or any financial help, instead we take a financial risk every morning we open our doors, that is private enterprise. The public servants with their guaranteed incomes and gold plated pension should stick to public policy not interfere in the private sector, which most of them have never had experience of managing.

  5. I have said on many an occasion: if you want to be and be seen to be impartial, contingent charging is not the answer.

  6. uncan, the funds being referenced are the ones recommended by Active Wealth where there is a 5% exit penalty in the first year, reducing by 1% for the next 4 years.
    Clearly Active wealth did not charge enough as they have gone bust

  7. I believe the problem with British Steel advisers is that they are fast tracking them with no proper appraisals on an individual basis. This doesn’t mean the whole industry works like this.

  8. If you are transacting DB pension transfers on a contingent charging basis. The temptation is there to recommend a transfer in cases where it is not in the client’s best interests to do so.

    The reason being that it takes almost as much time and effort to recommend that a client remain in the existing scheme as it does to recommend a transfer.

    However, if you are advising on a contingent charging basis you will not be paid for recommending that the client remain in the DB scheme. Where as if you recommend a transfer you will be paid an initial fee and a ongoing fund based fee.

    Charging on a contingent basis for DB pension transfers means that you will actually earn less money if you do the job properly (i.e. recommending not to transfer if it is appropriate). As opposed to recommending a transfer in cases where the client would be best served by leaving the pension benefits in the DB scheme.

    • Indeed, we stopped allowing contingent charges for that express reason.

      It’s not the transfer to the new product that is the work and risk, it’s working out what the best option for that specific client and carrying the can for the advice should things go wrong in the future despite you best efforts.

      • Even if you charge a fixed fee for the transfer advice there is still a contingency – if you recommend a transfer you get ongoing fees.

        In order to eliminate this and any other conflict/temptation you would have to preclude yourself from any ongoing benefit from a transfer.

        In the end you have to trust the adviser to do the right thing. Just like other professionals like solicitors, accountants and doctors, if you get a bad one then the way they charge you isn’t going to help. Equally, get a good one and the way they charge you isn’t going to influence them either.

        We are at the stage where there are more than enough rules and regulations, having more isn’t going to make a difference. What’s needed is money spent on actively catching the bad eggs and prompt, decisive intervention in developing situations like this. But that won’t happen because it means regulators have to take responsibility when it goes wrong. Much easier to look like you’re doing something and have someone else to take the blame.

        • How does a prospective client know whether they have received good or bad advice? The answer is that they don’t usually know. If they did they wouldn’t have followed the advice in the first place.

          They usually find out that they have received bad financial advice after having suffered a financial loss as a direct result of the advice.

          Alternatively, they find out if a more competent or honest adviser takes over their affairs and points out the bad advice to them.

          The FCA needs to be in a position where they can minimise the level of bad advice given and spot the rogues before they can cause too much damage.

          However, I have no real idea as to how the FCA can do this in a more effective way than they are at the moment.

          • I agree with what you say, my point is that it has little to do with contingent charging.

            As for the FCA, they could do much more but it entails making decisions about intervention and taking responsibility. But that’s a high risk strategy for them even if it is better for clients. Far easier to sit back, look like your doing something and have others to blame and pay up when things go wrong.

        • Grey Area. Spot on. The issue being is that unless you advise upon the investment of the transfer funds you cannot provide the transfer advice as the recent FCA Consultation and many FOS cases confirm.

  9. @ Matt Amber A

    When you have had experience of what it takes to run a financial advisory practice, then I will take on board your comments, until then you are not in any position to make such a pathetic comment Your employer presumably is a hardworking tycoon of free enterprise, without whom you would be out of a job !!

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