James Coney  

Clear the fog and bring in transparent fees

James Coney

James Coney

It is clear that contingent charging has become the latest toxic issue to blight the cause of good financial advice. 

The cross-party group of MPs who make up the Work and Pensions Committee has this on its radar and will probe them this year.

That looks like the beginning of the end to me. Blame the Financial Conduct Authority if you will.

There is a feeling in some quarters that it was too hasty in not doing a thorough review of contingent charges.

Had it done so then surely MPs would have steered clear of the subject. 

Ironically, while finding no clear-cut evidence of unsuitable advice driven by contingent charges, the FCA actually acknowledged that they could lead to an adviser recommending a transfer and products that incurred ongoing advice charges.

What a muddle.

Frank Field, who chairs the committee, is a fierce adversary. Some of the biggest brains in British business have crumbled in the bear-pit environment of his hearings.

It will take some nerve among the advice community to defend contingent charges.

Once more the antics of a handful of rogue advice firms – namely those involved with the scandal of the British Steel Pension Scheme – have caused this industry-wide issue. 

Steven Cameron, pensions director at Aegon, has been among those to race to defend contingent charging, warning they will cause fees to rise for consumers.

He is probably right.

After all, the overhaul of fee charging, which effectively outlawed commission, has seen the advice market radically change.

It has left those on lower incomes almost unable to get advice. From a consumer perspective, contingent charging just looks bad.

It is the grease that kept the wheels moving of a business that sees about £110m a day in pension transfers. They smack of a financial incentive.

I have sat on the other side of the fence, as a scheme trustee, and seen the requests of savers in a defined benefit plan who ask to transfer.

In some cases there was little or no obvious good reason why a member should want to jeopardise the retirement savings they have built up.

As a trustee you can question the member and point them in the direction of independent advice, but there is a line you cannot overstep.

In the end, the decision is the member’s alone – even if it looks like madness.

DB schemes themselves are to blame too for undermining the pensions they run.

They are guilty of poor communication with members, weakness by trustees in safeguarding and upholding the covenant with owners, and haste in persuading members to accept other types of income payment as a means of derisking the fund.