Defined Benefit  

MPs ready to propose contingent charging ban

MPs ready to propose contingent charging ban

The Work and Pensions select committee will push for legislation on a contingent charging ban if the Financial Conduct Authority doesn’t act, its chairman has said.

Frank Field told FTAdviser that he and his peers will introduce amendments to the next Pension Bill if he doesn’t see action from the regulator in this area.

He said: "I cannot see the point of having a fee structure that allows for bad advice.

"How can the FCA say that to have a single fee, whatever the outcome [of the advice is], could be worse than the present structure?"

Contingent charging means a client only pays for the advice if they go ahead with the recommended course of action, which the FCA is concerned could create 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 involves the client giving up valuable benefits including a lifetime of secure income, so it may not be in their best interests.

The FCA had already consulted the industry on this topic last year but decided against a ban in October, despite finding widespread problems in the suitability of pension transfer advice.

The regulator then stated it will consult on this topic again if it considers that changes are needed.

In a letter to the FCA published last week the Work and Pensions committee reiterated that a ban on advisers charging contingent fees would be the best way to protect customers.

This followed the MPs' inquiry into charging structures for financial advice on defined benefit transfers launched earlier this year.

Mr Field said the committee would wait until the summer and push for legislation if the regulator does not act. 

But not everyone agrees with Mr Field. So far in the debate the industry has been split over contingent charging.

Keith Richards, chief executive at the Personal Finance Society, said he had sympathy for the committee’s concerns but thought the call for a ban was "misplaced".

He said: "We would caution against a ban which the FCA had previously considered and dismissed, acknowledging that contingent charging alone wasn’t the underlying reason for poor transfer advice.

"I agree with the FCA that a ban would not in itself deter a minority set on doing the wrong thing."

Simon Harrington, senior policy adviser at the Personal Investment Management & Financial Advice Association, noted that the committee’s position on contingent charging was "obviously disappointing" but nevertheless "in no way surprising".

He said: "We remain of the view that without a viable alternative to contingent charging, the unintended consequences of a ban will be extremely damaging for individuals.

"We look forward to working constructively with the regulator on this matter over the coming months.

"They are acutely aware of the standards advisers uphold as well as their own regulatory processes which prevent the overwhelming majority of advisers – regardless of their charging structure – to provide suitable, high quality financial advice."