Defined Benefit 

FCA to reopen contingent charging debate

FCA to reopen contingent charging debate

The Financial Conduct Authority will consult this summer on new contingent charging rules for pension transfers advice if it considers that changes are needed.

In its 56-page long Business Plan for 2019/20, published today (April 17), the regulator stated there was an "inherent conflict of interest" when firms use contingent charging structures.

The FCA noted that it had already consulted the industry in 2018 on how these structures for pension transfer advice may cause consumer harm and had decided against a ban in October despite finding widespread problems in the suitability of pension transfers.

Adding to this, the Work and Pensions select committee also held an inquiry into charging structures for financial advice on defined benefit transfers earlier this year.

"Using all this information, our policy team are now analysing if and what action we may need to take," the FCA stated.

If the watchdog considers that rule changes are appropriate, it will consult on any new proposals in the summer of 2019.

Contingent charging means a client only pays for the advice if they go ahead with the recommended course of action, which the FCA has stated 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 is usually irreversible and likely to mean the client giving up valuable benefits including a lifetime of secure income, so it may not be in their best interests.

In its business plan the FCA also reiterated that it will "start a wide-ranging programme of activity with firms" regarding DB transfers.

FTAdviser reported last week (April 10) that the regulator is expected to be making individual assessments of firms significantly involved in providing this type of advice.

"We may take action against any firm that continues to present harm to consumers," the FCA stated in its business plan.

"We will continue to publish findings and updates to firms and to consumers as our programme continues," it added.

Meanwhile the FCA is planning to publish the result of its consultation into investment pathways in drawdown, stemming from its retirement outcomes review, in July 2019.

Published in 2018, the ROR found that consumers entering drawdown often struggle to make investment decisions or do not engage enough to do so.

The watchdog announced in its business plan that it will undertake a post-implementation review of its ROR remedies, which will look at "providers’ charges, the way they offer investment pathways and how well they are complying with relevant product governance requirements".

Under the joint regulatory strategy between the FCA and The Pensions Regulator, both regulators will be working on a review of the consumer pensions journey, to see "how effectively the information from pension schemes and providers combine with guidance and advice services to help consumers make well informed decisions," it stated.

The watchdogs will also further develop common principles and standards for delivering value for money, beyond TPR’s existing defined contribution code and guidance, it added.