According to Warren Shute, certified financial planner and director at Swindon-based Lexington Wealth Management, advisers who are only remunerated when a product transaction takes place “should not be allowed to be called anything other than sales consultant”.
He said: “You wouldn't ask a butcher for nutritional advice!”
Graham Bentley, managing director of consultancy gbi2, argued the RDR “identified advice as the chargeable activity, not an associated product recommendation”, so contingent charging is obsolete.
He said: “A recommendation to do nothing is no less chargeable than a recommendation to do something. Both require investigation and analysis to reach a conclusion. It’s the investigation and analysis that demands the fee.”
Some specialists are, however, advising caution about the regulator introducing a “blanket position”.
Rory Percival, former technical specialist at the FCA, who now runs his own consultancy, said he is adverse to an outright ban.
“If a client comes along and they got £31,000 they have to get advice. And if they have a low income and don't have any other resources at all, then they don't have the money to pay the non-contingent charge.
“I think I'm probably adverse to an outright ban, but certainly I think it should be the minority scenario. It should be the exception rather than the norm as it is at the moment.”
Mr Percival understands, however, why the MPs would suggest such a solution.
He said: “It’s is an easy, simple approach to take. It's a simple answer. The problem is good answers don't tend to be simple.”
There are also some financial advisers that don’t agree with the introduction of such a ban.
Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, argued that he hasn’t “seen enough evidence to suggest that contingent charging leads to poor advice”.
“If the advice is unsuitable, then it will be unsuitable regardless of how the advice is paid for. It’s all about the advice process, and management oversight and controls within a firm.
“This is what the FCA needs to work hard to ensure firms that are active in this market must have higher controls or compliance procedures in place.”
Mike Lacey, partner at Berkshire-based financial adviser firm Bowman Pension Consulting, argued that “an outright ban on contingent fees would lead to fewer people actually taking advice”.
He said: “The problem is that to advise on pension transfers is being seen as increasingly risky and there is no way an adviser can offer advice at no cost.
“Even if no transaction takes place after the advice has been given, the advice has been given and the adviser is liable. But clients often don’t like to part with a fee – particularly when the advice is ‘stay put’.”