The work and pensions select committee has launched an inquiry into the way financial advice is charged for on defined benefit transfers.
This probe follows a previous inquiry into freedom and choice where the committee says it received worrying evidence about the financial advice given to members of the British Steel Pension Scheme.
Here the committee’s report found that many members of the BSPS were given bad advice and took a DB transfer when it was not in their best interests.
It suggested contingent charging where an adviser is paid if the DB transfer goes through after a recommendation should be banned.
In response to the committee’s report, the FCA agreed to look at the issue and included it in a consultation which ended earlier in 2018.
In October 2018, the FCA published feedback from its consultation, together with its final rules and guidance.It summarised the pros and cons of a ban and said responses to the consultation highlighted the “complexities and interlinked issues that need to be worked through and considered”.
As a result, the FCA did not introduce a ban on contingent charging and said it “needs to carry out further analysis of the issues”.
In particular, the FCA said there was a lack of evidence linking contingent charging to unsuitable advice and bad outcomes.
MPs say they want to help the FCA with its next steps and want to hear from anyone who has been affected by this issue.
The committee wants answers to the following questions in particular:
- Does contingent charging increase the likelihood of unsuitable advice?
- What would be the impact of a ban on contingent charging on consumers and firms and how could any negative effects be minimised?
- Are there any alternative solutions that would remove conflicts of interest but avoid any possible negative impacts of an outright ban on contingent charging?
Chairman and MP Frank Field says: “The FCA has confirmed to me that it shares many of the committee’s concerns about the scourge of contingent charging. But to tackle this, and to protect consumers from the vultures circling around their pension pots, it needs more proof of what is really happening to people.
“It has explained to me the complexities of contingent charging, and how it needs to carefully consider its possible interventions so as not to cause unintended harm, particularly to vulnerable customers.
“The FCA has said it would welcome the committee’s help to find out more, and we’ll be happy to do everything we can to make sure we get the right safeguards in place.”
The inquiry runs until 31 January.