It has been almost nine months since the contingent charging ban on defined benefit transfer advice came into effect.
So what impact is the ban having?
Last month, figures from LCP showed that DB transfers had fallen to their lowest level in five years.
Analysis from the consultancy found that in Q3 2020 only 25 out of every 10,000 members transferred out of their DB pension into a defined contribution plan, down 62 per cent from its peak in Q3 2017 and the lowest level since 2016.
Fiona Tait, technical director at Intelligent Pensions, says: “The ban will certainly have had an impact on those advice firms who previously operated a contingent charging model, but there are knock-on effects for other advice firms as well.“
Tait says that while Intelligent Pensions did not operate a contingent model, it did have a separate implementation fee that was only charged if this work was carried out.
She adds: “Under the new rules we are obliged to charge exactly the same whether or not a transfer is recommended, and we have had to factor this into our initial charges.
“While we fully support the removal of contingent charging, it may be that the impact of cross subsidy has now shifted too far, so that those who do not transfer are now cross subsidising the costs of those of who do.”
Darren Cooke, chartered financial planner at Red Circle Financial Planning, adds: “I suspect the ban has led to a lot less people taking advice because they won't want to, or can't afford to pay a fee if the answer to transfer is no. We can't be certain if it is driving different behaviours until we see the stats for transfers post the ban.”
However, Cooke says he does not think the ban completely removes the incentive to transfer for the adviser.
He says: “The upfront fee will still be paid to transfer or not, but if the client doesn't transfer then there is no ongoing servicing fee on the transferred pot. Those fees, over many years, will far outweigh any initial fees anyway, so there is still a bias to transfer.”
David Boyhan, technical director at TCC, argues that although the DB market is less buoyant now, this is not due to the ban on contingent charging.
“Many firms pulled out of the DB market prior to the ban on contingent charging, and few we have spoken to have cited the ban as a reason for leaving the market”, he adds.
“We have definitely noticed a marked improvement in DB transfer advice, partly due to the ban on contingent charging. However, we believe the improvement has been mainly driven by firms’ better understanding of the [Financial Conduct Authority's] expectations of advice in this complex area.