View more on these topics

MPs launch probe into contingent charging

Focusing on money - Magnifying glass over British pound notes.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.

Recommended

Spotlight on charges 700x450.jpg
9

FCA drops contingent charging ban as transfer specialists forced to take investment exams

Pension transfer specialists will have to get the same qualifications as an investment adviser in addition to the existing specialist qualification, the FCA has ruled today. After months of consultation, the regulator has produced new rules and guidance aimed at improving defined benefit transfer advice. While it has stopped short of a contingent charging ban, […]

4

Keith Richards: Contingent charging must be preserved 

The work and pensions select committee is calling for a ban on contingent charging, but this would have an impact on consumer choice. We need to protect consumer choice by mitigating growing concerns over conflicts of interest – real or perceived – and the inherent risk to contingent charging more widely. Consumers seek financial planning […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

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

  1. I think we already know the answer, if an adviser only gets paid if a DB transfer goes ahead, then human nature dictates that the positive factors for transfer will be highlighted and less time spent examining the potential downsides.

    This should not be confused with giving the client the option to pay the advice fee from the transfer, this can be very tax efficient as the fund has not been taxed at that point. A non contingent fee is agreed before work commences and the methods of payment discussed.

    With PI excesses now at £20k for DB transfers, who would want to give advice with such a high liability and not guarantee payment of their fees?

  2. Most advisers offer guidance at their expence, then a fee for a report and advice, followed by a transaction fee if the client wishes to proceed.

    HOW can advisers cover the costs going forward, THEY CANNOT. Give any advice on any DB case costs them between £150 to £350 PER ANNUM, per case on their PI, liable for ever more or until they close. By having to provide a Suitability Letter and receiving a fee makes adviser liable whatever happens. Hindsight at its best. Even the PI insurers are waiting for that first case that should have been transferred claiming against an adviser who recommended not to.

    If they want to do some good, reduce the costs, review the WHOLE system, not just the easy option and force rules and clear process from the FCA with a fee cap if followed correctly.

    Better still remove the adviser all together, let the client transfer themselves. Why should adviser HAVE to sign their lives away for a consumers to exercise their pension freedoms? It clearly is not working for the consumer or advisers.

    What does needs to stop is this farce played out by regulators and politicians.

    • Allowing those who have virtually no understanding of the issues that need to be considered to transfer the value of their DPB’s would open the floodgates to disaster.

      Consider how many people who’ve either bought the wrong annuity (despite retirement packs extolling the merits of taking advice and exploring the open market) or who’ve wrongly entered Income DrawDown (because all annuities are poor value, right?) or who’ve wrongly cashed out their pension funds just because “It’s my money and the Pension Freedoms say I can now do what I want with it”, only to suffer the shock of a 40% tax deduction at source and, a few years down the line, finding themselves badly short of retirement income. DIY pension transfers would just be throwing petrol on the fire.

  3. Advisers have to play by the rules laid down by Government and Regulators but when anything goes wrong it’s the adviser’s fault!

  4. If MP’s like probing so much…why don,t the probe into the real effect of the the FCA fees and FSCS levies have on clients pockets and investments ….I fear this contingent charging obsession would be, but a saucer of milk in a muddy pond !

    There you go Frank probe away …my I suggest a cattle prod approach to get the correct answers from Bailey and cohorts !

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com