04 June 2018
The Personal Finance Society (PFS), in its submission to the Financial Conduct Authority (FCA) consultation paper on the issue of pension transfer advice, has supported the introduction of a ban on adviser charging for advice on a contingent basis. They argue that the lower levels of suitability of advice given for pension transfer business, when compared to other investment business, is a clear indication conflict of interest created by contingent charging "are not being managed successfully across the market".
A conflict of interest is potentially raised with contingent charging which means a client only pays for the advice if they go ahead with a recommended course of action. In the case of pension transfers, the adviser won't get paid unless the pension is transferred, which in nearly all cases is irreversible and could potentially mean that the client is giving up valuable benefits that may not be in their best interests. This ties in with the FCA's own view of the matter. The FCA paper saying:
We consider that [the contingent charging] model has the greatest potential to incentivise unsuitable advice as such a firm would not be viable if it did not recommend a minimum number of transfers each year."
The PFS suggests an alternative, where an initial review and recommendation should have a separate charge, especially giving that the ongoing "starting assumption" that a transfer is unlikely to be in the clients' best interests.
The PFS statement said: "In respect of other forms of advice where the starting point is the need to do something (e.g. make a suitable investment), contingent charging is far less of a risk but in the case of defined benefit (DB) transfers where there is a strong possibility that a transfer is unsuitable, it is in our view inappropriate".