Defined Benefit  

Warning FCA is scrutinising pension transfer charges

Warning FCA is scrutinising pension transfer charges

The Financial Conduct Authority is understood to be looking into the issue of advisers charging structures around defined benefit transfers.

Some advisers are seemingly charging more for defined benefit transfers than other business, because of the risks and future liability involved.

But it is understood there has been at least one instance of an advice firm reflecting that higher charge across other services.

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This means the client is paying more for certain services than they would have done, simply because there was a defined benefit transfer involved.

Phil Deeks, technical director at TCC, formerly known as The Consulting Consortium, said he was aware of an instance of this and urged advisers to be careful with their charging structures for defined benefit transfers.

He said: “We are seeing advisers charging up to 7 per cent.

“I think the struggle you would get is how to justify that value for money, which is increasingly where I see the regulator going.

“Clearly people are looking at this as a risk-based business. If you put yourself in the position of the customer or the regulator, ask how you can justify that across the whole transaction.”

Another industry figure also said they were aware of a firm which had fallen foul of this issue, but it is not clear whether or not if it is the same one.

Last week it emerged that the FCA is carrying out a desk-based study into advice firms doing a “significant” amount of defined benefit transfer business.

Among the concerns the regulator is believed to have is the conflicts of interest involved in the process.

The work is understood to not be a formal review or study but is a piece of supervisory work in which the FCA is looking at advice firms which have increased the number of DB transfers they have been doing.

Dennis Hall, chief executive of London-based Yellowtail Financial Planning, said he charged a fixed fee for defined benefit transfers.

He said: “7 per cent sounds ridiculous to me. I don’t know how any transfer value could absorb that.

“I think you have got to be completely transparent, including with any contingent charging and your fees have got to stack up in terms of value for money.”

The FCA declined to comment.

However the FCA has previously stated while it is up to firms how to charge clients, advisers must determine and use an appropriate charging structure for calculating its their charges.

Specifically where a firm charges on a contingency basis, the standard FCA view is that this may give rise to a conflict of interest - and it expects firms operating contingent charging to recognise this risk and have adequate controls in place to manage it.