Defined Benefit  

Just 10 IFAs rated OK to advise on pension transfers

Just 10 IFAs rated OK to advise on pension transfers

Pension scheme trustees and employers have revealed they are refusing to appoint financial advice firms who get paid via contingent charging.

Consultancy firms LCP and Willis Towers Watson, which help trustees and companies, told FTAdviser that due to this restriction, plus the need to be able to process a large volume of cases, there are less than 10 firms in the country suited to be hired by pension schemes.

Stewart Patterson, director of retirement at Willis Towers Watson, said: "I haven't seen any pension schemes or employers initiated exercises go anywhere near contingent charging. It doesn't even pass the sniff test.

"None of the firms that we put in front of our clients would be offering those sorts of fees."

Contingent charging means a client only pays for the advice if they go ahead with the recommended course of action. In the case of pension transfers, the adviser won't get paid unless the pension is transferred.

An outright advice charge, on the other hand, would mean the adviser gets paid for the advice regardless of the outcome.

Jonathan Camfield, partner at LCP - consultancy firm which advises more than 40 per cent of the FTSE100 companies -, goes further and said trustees and employers also don't appoint vertically integrated advice firms.

These businesses - which often provide funds and platforms, as well as financial advice -, don't have transparent fee structures, he noted.

He said: "The main concern that we have with it is that enables high charges, with layers and layers of them, that means that funds that are transferred are losing more money than they need to through more expensive charges."

The trend in trustees appointing financial advice firms to help their members increased after the British Steel transfer debacle, he explained.

Mr Camfield added: "Until recently, trustees were very reticent to help members by appointing a financial adviser. They were concerned that it wasn't their role and that it would encourage people to transfer out.

"But now we see a number of trustee boards saying that the risk from contingent charging and own fund transfers is so significant that they want to put in place their own financial adviser firm that doesn't have those features, so that they can be sure that their members have access to advice that they are comfortable with."

Mr Camfield was involved in four appointments of advice firms in the last 12 months by trustees, which was a first, he said.

He explained that trustees and employers "don't like the idea of contingent charging and own fund transfers", and they prefer that these practices aren't available.

"They certainly don't want to be seen endorsing a firm that operates on that basis because they see it as conflict of interest," he argued.

Mr Patterson said that vertically integrated advice firms are more of a grey area than contingent charging, and it can be managed as long as there is appropriate safeguards and Chinese walls are in place.