Regulation has finally caught up with what many pension advisers have been saying for years: contingent charging is an outdated incentive towards advice recommendations.
The Financial Conduct Authority’s long-awaited policy statement on defined benefit transfers has put paid to what it called “potential conflicts of interest” by banning contingent charging.
It has also set out a range of measures to make sure that customers who are told to transfer their DB pension do so on the basis that it really is in their best interests, rather than to the financial advantage of the introducer or adviser.
And about time too. If the FCA considers provider-led training days, client dinners and Christmas gifts to be inducements towards a financial recommendation, then surely contingent charging was too, or at least could be seen as one.
No doubt a few die-hards, whose business models are more 1990 than 2020, will lament the end of yet one more source of revenue, but for the vast majority of financial advisers whose move to fee-based advice has been profitable and professional, a ban on contingent charging will not affect their income levels or their ability to grow their client base.
While many advisers on social media were generally for the FCA’s decision, others voiced concern that this could put off seeking advice as clients may see it as cost prohibitive.
The FCA has acted in these exceptional circumstances to ensure the ban does not disadvantage these groups of consumers. For such clients, it said, “we propose they may continue to be charged on a contingent basis”.
But outside of these exceptions, we do all the excellent financial advisers out there a huge disservice if we perpetuate the myth that banning contingent charging will leave future potential pension clients at a disadvantage.
Dozens of British Steel Pension Scheme transfer victims would agree with that.