Proposed contingent charging ban 'throwing the baby out with the bath water'

Last month (30 July), the Financial Conduct Authority said it was consulting on plans to ban contingent charging on defined benefit (DB) transfer advice. 

In consultation paper CP19/25, the FCA expressed concern that too many advisers were delivering poor advice and said much of it was driven by conflicts of interest in the way they are remunerated.

Rowley Turton director Gallacher said he did not think the regulator understood the "true costs" of running a business.

He said the FCA had "significantly underestimated" the hours a DB transfer takes to complete, as well as the hourly rate. Without contingent charging, he added, an adviser's hourly rate would need to increase to factor in the additional risk premium.

Although he acknowledged there is concern with DB transfers, he said a contingent charging ban was "throwing the baby out with the bath water".

"I think it's the wrong solution to the problem," he added. 

'Lumbering into action'

On the other side of the coin, Work and Pensions Select Committee chair Frank Field accused the regulator of "lumbering into action" after he suggested it should ban contingent charging some 18 months ago.

As well as contingent charging, the FCA is consulting on addressing potential conflicts of interest that arise where an adviser advising on a pension transfer stands to receive ongoing fees. The regulator pointed out that, in some cases, can be for 20 or 30 years following the transfer.

Additionally, the FCA proposed advisers should be required to demonstrate why any scheme they recommend is more suitable than a consumer's workplace pension scheme.

Best practice guidance 

Gallacher said the FCA should give "proper guidance" to advisers, especially on DB transfers: "Everything they do is always a bit woolly. They need to be better at putting forward best practice guidance."

He also questioned how those who are qualified pension transfer specialists and regulated by the FCA are able to mis-sell "toxic, overpriced investments". He also wondered how they were able to qualify as an adviser in the first place. 

He added: "DB transfers can be a valid part of financial planning for some clients, but under the current and arguably tightening regulatory environment, I suspect it will not be much longer until it is entirely unviable for advisers to offer this advice."

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• Topics
• Regulation
• FCA
• contingent charging
• Scott Gallacher