The only exceptions are if an individual has particular characteristics, such as serious ill health, which mean a transfer is more than likely to be in the member’s best interest.
However, these cases will represent a minority. Even in these circumstances, costs will be limited to being the same as the level of non-contingent charging on other transfers.
The consultation runs until October 30 2019, with any changes expected to be implemented in early 2020.
Will there be an impact on members?
The FCA’s key objective is to drive up the quality of advice.
A ban on contingent charging is expected to do this by removing the obvious conflicts of interest.
As a result, we expect fewer members will be advised to transfer and that advice will be more robust and suitable to member circumstances.
The ban will not only impact the quality of advice.
We anticipate a more immediate impact will be the ability and willingness of members to access advice in the first place.
Contingent charging is widespread partly because members are reluctant to pay large advice fees.
Banning contingent charging will be a barrier to lots of pension scheme members who want to consider their pension options.
The proposals by the FCA suggest a short form of advice that could continue to make at least an initial layer of advice accessible to members. But it remains to be seen if and how this might work in practice.
As advice is required on all DB transfers above £30,000, members will be more likely to remain within pension schemes even when they may have valued the alternative flexibilities a pension transfer may have provided.
Some members will not be willing to fork out such upfront costs and this will result in fewer members transferring.
Our monthly Transfer Watch publication has shown that between 1-2 per cent of eligible members are currently transferring each year.
We would expect a fall in transfer activity following any ban on contingent charging.
Will there be an impact on the adviser market?
Many financial advisers charge on a contingent basis. This is particularly true of the smaller companies of advisers. If contingent charging is banned, then we expect that some of these advisers will leave the market.
For individuals, finding an adviser can be challenging enough already. Reducing the number of available advisers will just make this harder for members and potentially even drive up costs as demand could exceed supply.
There are undoubtedly some high-quality smaller companies of financial advisers. These are often local companies who provide a valuable service to their communities. Should these advisers leave the market then it will be to the detriment of the communities that they serve.
