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Pimfa urges FCA against contingent charging ban

The FCA should not be under the illusion a ban on contingent charging will necessarily improve the quality of advice, an adviser trade body has said.

The Personal Investment Management and Financial Advice Association warns any contingent charging ban could have unforeseen consequences.

According to Pimfa removing contingent charging could push consumers to either become non-advised or choosing the cheapest advice they possibly can.

Senior policy adviser Simon Harrington says: We are not convinced that the removal of contingent charging will necessarily improve the quality of advice consumers will receive or indeed, improve their overall outcomes. Further, we would urge the regulator to consider the unintended consequences of imposing such a ban.”

Harrington adds: “Ultimately we do not believe that banning contingent charging is in any way complementary to the government’s stated aim of closing the advice gap.

“For many individuals, contingent charging is the only effective mechanism through which they can access quality advice due to the upfront costs involved.

“It is reductive to assume that contingent charging is both responsible for adviser conflicts of interest and indeed the only determinant of unsuitable advice.”

In its response to the FCA’s consultation on improving the quality of pension transfer advice which closes today, Pimfa add that the regulator should consult closely with the industry if it decides to go ahead with the ban.

The FCA must work with the industry on what alternatives could be put in place to help consumers address the sometimes high cost of advice, it adds.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 25th May 2018 at 10:21 am

    What this overlooks is the fact that the adviser is as liable ~ indefinitely ~ for the suitability of a recommendation not to transfer as s/he is for a recommendation to transfer. Therefore, in theory at least, the costs of arriving at a recommendation, one way or the other, are pretty much the same.

    If the assessment is undertaken on a contingent charging basis, it CANNOT be free of a conflict of interest. Also, as the FCA has pointed out, if the adviser earns nothing from a recommendation not to transfer, the cost of his assessment either has to be borne as a loss (hardly good business sense, particularly if ten cases in a row all lead to the conclusion that transferring is not a good idea) or reallocated to those who do transfer (which is hardly TCF).

    • Regardless of how the advice is paid for, if a client transfers then the adviser generates a income in ongoing fees far in excess of any initial advice fee.

      No one seems to want to address that particular conflict elephant.

      In the end the only thing that really matters is the integrity of the adviser. You can’t change that with rules. Those without integrity will ignore the rules or find a way round them.

      • Julian Stevens 27th May 2018 at 10:45 am

        A valid point, though in view of the fact that transferring into a PP is (or at least should be) just the beginning of what should be an ongoing adviser:client relationship, I cannot think of a way round it.

  2. Julian – even if an adviser earned a fee for the Transfer Report, undoubtedly they would earn MORE from the implementation & ongoing. Hence regardless o contingent charging, conflict of interest still exists.

    PIMFA is right in that the issue is not with contingent charging and the FCA would be deluded to believe so. The problem is with the integrity of advisers, the short-term view of businesses that conduct DB transfers. Most of these DB transfer firms specialise in these types of advice only, thereby creating a “toxic business” with no other sources of revenue. Questionable business acumen if you ask me. FCA should have rules in place to limit a firm’s exposure to DB transfers, so we avoid situations like Active Wealth (1 man band with potentially £millions to be paid out by FSCS) and Selectapensions’ DB transfer partner (a 2 man band doing 40k+ transfer reports in one year). This stupidly high level of business risk should never be allowed given how FSCS is currently funded.

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