Trade association the Personal Investment Management & Financial Advice Association (Pimfa) has made it clear that it does not support Financial Conduct Authority (FCA) proposals to ban contingent charging for pension transfers.
Contingent charging is where a firm only receives a fee from the client if they recommend a particular course of action. For example, a firm might charge the client a percentage of the amount being transferred between different pension arrangements. Such a charging system would mean that the firm would receive nothing if it did not recommend that the transfer took place, and supporters of a ban have highlighted that this could give the adviser an undue incentive to recommend a transfer, regardless of whether it was actually in the client’s best interests. The FCA is expected to confirm later in the autumn whether it will be pressing ahead with a ban on advisory firms imposing this type of fee.
In an interview with trade magazine FTAdviser, Pimfa’s senior policy adviser Simon Harrington cited two main reasons why his organisation opposed the ban. Firstly, he said he did not believe that the Association’s members would recommend a transfer that was not in the client’s interests simply to receive a fee. Secondly, he suggested that the ban could hinder the ongoing efforts to widen access to financial advice. The problem he anticipates here is that consumers will be put off seeking advice on their pension because they do not have the available cash to pay an upfront fee.
Mr Harrington suggested there was “a large demographic of people who do not access financial advice because they do not believe they are wealthy enough to access it.” He went on to say that research had shown that one in five people with a pension pot of £150,000 or more did not believe that they were wealthy enough in this respect.
The FCA has been concerned about the quality of firms’ pension transfer advice for some time. In October 2017, the FCA published the final results of its supervisory work on pension transfer advice, and of the files reviewed during this study, in only 47% of cases could the advice be shown to be suitable, and in only 35% of cases were the products and funds recommended for the new scheme judged to be suitable.
The FCA introduced new rules for pension transfers in April of this year, and looks set to introduce further rules, of which contingent charging may just be one.
Firms offering pension transfer advice are therefore advised to keep a close eye on communications from the FCA on this subject.
In his interview, Mr Harrington also called for greater awareness of the £500 advice allowance that is available to consumers seeking advice on their pension and who need to pay their adviser’s fee and expressed his concern at the high numbers of retirees who were accepting the drawdown offer from their own pension provider.
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