Defined Benefit  

FCA goes ahead with DB transfer contingent charging ban

FCA goes ahead with DB transfer contingent charging ban

The Financial Conduct Authority will ban contingent charging on defined benefit transfers in all but a few pension transfer scenarios but will allow abridged advice as another route for consumers to have access to lower fees.

In a policy statement, published this morning (June 4), the regulator confirmed it will ban contingent charging in most circumstances, with only consumers with certain identifiable circumstances, such as those suffering from serious ill-health or experiencing serious financial hardship, being exempt.

In the minority of cases where contingent charging is permitted, advice firms will have to charge the same amount, in monetary terms, for advice to transfer as they charge when the advice is non-contingent.

The ban will come into effect on October 1, 2020.

Contingent charging means a client only pays for the advice if they go ahead with a transfer.

The FCA said by introducing this ban it will remove the conflicts of interest which arise when a financial adviser only gets paid if a transfer goes ahead. 

It said the move would also help good advisers, who often advise to stay put, to compete in the market.

According to the FCA, although many firms opposed the ban there were as many who supported it

It stated: “Even those who opposed the ban considered it would be effective in reducing the proportion of unsuitable advice.”

The FCA also wants firms to stop giving advice when delivering triage services, for example giving them generic information about what a transfer is and the dangers that come with it, and has introduced new guidance to stop this which becomes effective from June 15, 2020.

However, the regulator is introducing proposals to allow advisers to provide an abridged advice process which it says “will help consumers access initial advice at a more affordable cost”. 

Abridged advice would fall outside the proposed ban on contingent charging as the regulator expects costs will be much lower and it can only result in a recommendation not to transfer.

This new type of advice will include an introductory chat with the client, where the adviser can get some high-level information about their circumstances, and determine that the consumer isn’t a viable candidate for a transfer.

The result of abridged advice can only be to not transfer, and the adviser is expected to conduct a full fact-find and risk assessment, including an assessment of the client’s attitude to transfer risk in line with the FCA’s guidance on assessing suitability.

The FCA’s final rules confirm that a pension transfer specialist must give or check abridged advice.

The FCA stated: “As abridged advice could represent the first stage of full advice, we believe it is more cost-effective to have a consistent approach, using a [pension transfer specialist ] cross both abridged advice and full advice. 

“We recognise that, while abridged advice will not appeal to all consumers, firms may be able to attract clients who would otherwise be unwilling to pay for full advice.”