It may also be that someone is looking to have more control over their own pension investments, which again would mean moving to a DC pension – although this definitely increases the risk a client is taking and still may not be a good idea.
But the benefit of advice is that it is specific to the individual, and while there may be many reasons not to move a DB pension, the one that matters most to a client could still mean a transfer is the right option for them.
The downside of an outright ban on contingent charging is the ability for some people to get access to advice at all, which means they could move themselves out of a DB scheme because they do not know how much better it is for them than a DC scheme they might move into.
Either way, charges – whether on a DB transfer, a DC pension or just a client’s investment portfolio – are something clients need to pay more attention to because of the impact they have on the returns they receive.
Research from consolidator AFH found that more than four-in-five investors undervalued the actual impact of these fees on their investments.
Typically, they undervalue the cost of fees on their investments by around £5,000, and one-in-eight are not aware of the fees they are paying.
A 0.3 per cent charge on a £50,000 investment over 25 years would cost £12,500, while on average investors estimated they would cost £7,400 – significantly lower than reality.
Charges eat into investment returns. Fact.
Whether they are adviser charges, platform charges, in-fund transactional charges, taxes and so on, they all add up. They add up to a reduction in performance for investors so they should be kept to a minimum as far as possible.
However, investors and the FCA have to appreciate that advisers do need to make a living.
The ongoing assault on charges is understandable, and sensible, providing neither advisers or clients lose out as a result. It is a fine balance.
Alison Steed is a freelance journalist