Consultancy firm LCP is calling on the regulator to force advice firms to disclose their fees up front to potential clients, and to create a register which includes price comparisons.
In its submission to the Work and Pensions select committee inquiry into charging structures for financial advice on defined benefit transfers, launched in January, LCP is supporting a ban on contingent charging and also suggesting the end of vertically integrated advice firms.
Jonathan Camfield, partner at LCP, wrote: "Some of the big firms in the market are vertically integrated, more often than not the money ends up in the firm's own funds.
"The main concern that we have with it is that it enables high charges, with layers and layers of them, which means that funds that are transferred are losing more money than they need to through more expensive charges."
Mr Camfield said this issue was more serious than contingent charging – which means a client only pays for the advice if they go ahead with the recommended course of action.
He wrote: "The Financial Conduct Authority rules are so tight, and the professional indemnity insurers are all over this, and all IFAs know that if you get caught out with a few bad bits of advice on transfers, your business is finished.
"I know there is bad practice, but the regulatory market tension keeps that in check. So my biggest concern isn't contingent charging biasing behaviour, it is the fees charged for the advice and also for the end product."
LCP would like to see these practices banned, but as a minimum it is asking for "greater required transparency, not only in terms of what the costs are for the advice, but also for the end products, to be published in a standard way".
He added: "At the moment, it’s hard enough to find a financial adviser, and you just don't know what the charges are, and they are eye-watering."
In this area, the consultancy firm, which advises more than 40 per cent of the FTSE100 companies, suggested the FCA should require a one-page fee disclosure to pension scheme members, in a standard form, from all advice firms who operate in the defined benefit transfer space.
This should show clearly the fixed fee and contingent fee elements for the initial advice – in percentage and pound terms; the own funds and/or platform fees – in percentage and pound terms; ongoing advisory fees and exit fees.
LCP is also proposing that a new adviser registry is created, which should contain "a central, easily searchable, database for members to use to find a suitable IFA, who is a specialist in this area, including the fee schedule in standard form, to enable easy comparison between IFAs, including price comparison".
The FCA is currently working on plans to overhaul its financial services register in a bid to stop scams.
In September it added a search engine to its register to allow consumers to locate financial advice firms in their area.
But in October this was heavily criticised as it emerged the function included both authorised and unauthorised firms.
Critics claimed the accompanying warning was too small and could mislead users who do not look at the page carefully.
Paul Gibson, managing director at Granite Financial Planning, said: "I am all for transparency of charges, and Mifid II will hopefully lead to far greater transparency.
"Some firms do not seem to be adhering to the rules as well as they should, and I am sure the FCA will take action where appropriate.
"A new adviser register will just cost even more money and is not required. I do, however, have the same concerns regarding restricted advice firm costs, which in some cases are eye-wateringly expensive."
maria.espadinha@ft.com
