It is important to remember that contingent charging is not the only charging structure that gives rise to conflicts of interest. Where firms apply an hourly rate for advice, there is a conflict as the longer they take to research and give advice, the more fee income they will receive. The FCA allows firms to mitigate this conflict themselves. It is impossible for the FCA to put in place rules to mitigate all conflicts, just as it is not possible for a firm to establish controls to mitigate all conflicts. The only way to mitigate conflicts effectively is by ensuring the firm’s culture is appropriately aligned to consistently deliver the right customer outcomes.
When discussing this issue, we need to be mindful of the current advice landscape, including the perceived advice gap. Many potential customers who could benefit from advice do not feel they are able to pay for it. By banning contingent charging, we could potentially see an increase in the number of people not seeking financial advice on this important decision, thereby increasing the risk that customers either make unsuitable or sub-optimal decisions.
One thing we all agree on is that deciding to transfer a DB pension is a complex process. There are many aspects to consider, even when an individual has a pension with a transfer value of less than £30,000. Therefore, taking advice can significantly reduce the potential for customer detriment or sub-optimal outcomes.
Why culture is so important
The benefits that come from a good, customer-centric culture cannot be overstated. These include having to invest less in compliance and a reduced risk of regulatory censure, improved customer loyalty and a competitive edge. From a customer’s perspective, they receive suitable advice and fair outcomes that meet their needs and objectives.
Culture is the product of a firm’s behaviours, values and governance, driven not only by the senior leadership team, but employees at every level. It occurs organically, so it cannot be dictated by the regulator or imposed upon a firm.
Historical failings have taught us that a firm’s culture is more important than any controls it puts in place. Firms who have well-trained advisers, and who put the customer at the heart of their advice proposition, are far more likely to provide suitable advice. Forcing firms to change their charging model will not enhance a firm’s culture.
The FCA’s latest Policy Statement Advising on Pension Transfers gives the industry clear guidance on the regulator’s expectations in relation to pension transfers, including assessing suitability. Experienced advisers and pension transfer specialists, who understand the complexities of advice, should consistently provide suitable advice regardless of the charging model being used.
