FCA leaves door open on 'risky' contingent charging

FCA leaves door open on 'risky' contingent charging

The Financial Conduct Authority has left the door open on contingent charging despite finding widespread problems in the suitability of pension transfers, it is understood.

Yesterday (3 October) the FCA published the results of some of its work on defined benefit transfers which showed the proportion of suitable advice in this area was much lower than in the wider market for pensions advice.

Of the DB transfers the FCA has examined since October 2015, only 47 per cent were suitable compared to 91 per cent of wider retirement income advice.

Despite this it is understood the FCA has not changed its position on contingent charging and that it remains a matter for firms to decide how to charge their clients.

The FCA’s position on contingent charging has been set out since 2013 and was reiterated by David Geale, the regulator’s director of policy, earlier this year.

Its position remains that contingent charging is higher-risk than a time-cost charging model due to the need to sell products to generate revenue.

The FCA has previously said that firms operating under this model should ensure they have adequate controls in place to manage this risk and potential conflicts of interest.

Yesterday's research also found that only 35 per cent of advice on the recommended product and fund after a DB transfer was suitable.

The FCA has also said some firms providing specialist advice on defined benefit transfers have still not taken its warnings on board.

It found that some of these firms made transfer recommendations without considering the receiving scheme or investments, or without knowing the introducing adviser’s intentions for the pension.