In its 58 page-long policy statement Improving the quality of pension transfer advice published today (4 October), the regulator said contingent charging was a "complex area" and poor advice on defined benefit (DB) transfers had a number of causes.
The FCA said its initial analysis showed contingent charging was not the main driver of poor outcomes for customers but because of the significance of this issue to "all stakeholders", the regulator said it would carry out further analysis and consider action if appropriate.
It will not act to ban the practice for now, it said.
The regulator also recognised that intervening in the way charges are levied could limit access to pension transfer advice, since vulnerable consumers may not be able to access it.
Rory Percival, former technical specialist at the FCA, told FTAdviser previously that this would be one of the reasons why the watchdog won’t impose a ban.
There is also a potential for firms to work around a ban on contingent charging, the FCA noted.
The watchdog said it was "generally hard to show a direct link between unsuitable advice and firms using contingent charging models".
Charging models are only one of the potential drivers of unsuitability and need to be considered among other factors, it said.
FCA’s prior supervisory work showed some firms had failed to obtain enough information about clients’ needs and personal circumstances or to consider the needs of the customer alongside their objectives when making a recommendation.
Others didn’t make an adequate assessment of the risk a client was willing and able to take in relation to their pension benefits.
FTAdviser understands that the regulator’s primary focus will be further analysis of the charging structures being used in the market, particularly contingent charging, to determine if there is a need for intervention.
The regulator said it needed to consider how interventions in advisers charging structures would fit with the work it has already planned, including the post-implementation reviews of the Retail Distribution Review and Financial Advice Market Review, scheduled for next year.
Christopher Woolard, the FCA's executive director of strategy and competition, said: "Any changes to our rules on contingent charging could have implications for the supply of advice.
"Because of the significance of this issue to all stakeholders in the market, we will carry out further analysis and consult on new interventions if appropriate in the first half of next year."
Contingent charging means a client only pays for the advice if they go ahead with a transfer, which the FCA said raises the risk of a conflict of interest.
In the case of pension transfers, the adviser won't get paid unless the pension is transferred, which may mean the client giving up valuable benefits such as a lifetime of secure income when it may not be in their best interests.
Among the changes the FCA has gone ahead with is a requirement for all pension transfer specialists to hold a specific qualification for providing advice on investments by October 2020.
The regulator published a consultation in March where it lays out its views on this practice, with several financial advisers supporting a ban.
maria.espadinha@ft.com
