A ban on contingent charging could result in more advisers giving unsuitable advice, the Personal Investment Management and Financial Advice Association (Pimfa) has warned.
In its response to the Work and Pensions select committee inquiry into contingent charging on defined benefit (DB) transfers, launched earlier this month, the trade association warned of the unintended consequences of banning contingent charging.
Simon Harrington, a senior policy adviser at Pimfa, said: "We do not believe a ban will eliminate criminal advisers from the market – we believe it will push insistent, desperate clients towards them.
"As the committee knows, major players in the British Steel pension crisis charged low fees, not contingent fees, on the promise of a transfer.
"This behaviour would, in our view, become far more prevalent in factory gating scenarios in the event of a ban. This is something we should do everything we can to avoid."
Contingent charging means a client only pays for the advice if they go ahead with a transfer.
The Work and Pensions committee has already called on the Financial Conduct Authority (FCA) to ban contingent charging in its report into the British Steel Pension Scheme published last February, saying it considered the practice to be "a key driver of poor advice".
The committee stated it had received "worrying evidence" about the financial advice given to members of the British Steel Pension Scheme after they were given the option to transfer their pensions into defined contribution schemes.
But the regulator decided against a ban in October despite finding widespread problems in the suitability of pension transfers.
Mr Harrington said: "It remains a source of frustration that the committee continues to identify contingent charging as the main contributor to the events of the British Steel pension crisis.
"A proposal for a ban is a simplistic answer to a complex issue. It is also wrong."
Future Asset Management, a Bridgend-based financial advice firm, argued in its submission to the inquiry that removing initial contingent charging will not fully remove the incentive to transfer.
"Even if the same initial fee is received to transfer or remain, most financial advisers’ charging structures mean they would benefit more from a transfer, in that they would receive ongoing fees if the transfer was completed and increase the capital value of their business," it argued.
The firm, which was contacted by several steelworkers looking to transfer out of BSPS, has a non-contingent charging structure.
Future Asset Management argued banning contingent charging will also not remove predatory advisers.
"They could explain that the fees would be the same regardless of advice, and still pass comments such as ‘we won’t charge if we don’t move your pension’, or ‘we will be recommending to transfer’.
"It became apparent that far more dishonest statements were used by advisers to the British Steel members."
maria.espadinha@ft.com
