How can advisers navigate the contingent charging ban?

This article is part of
Guide to advice and guidance

Under proposals for the ban, the exceptions apply where the individual has a specific illness or condition resulting in life expectancy being lower than age 75 or is in serious financial hardship, such as at risk of losing their home due to being unable to meet mortgage payments.

Mr Cameron says: “The FCA accepts that for some, contingent charging is the only feasible way of paying for advice, so we’re pleased it’s proposing some carve-outs from the ban for certain groups based on their personal circumstances.  

“Advisers may identify that an individual qualifies for a carve-out during triage or an abridged advice process.

“It will be for adviser firms to obtain official evidence before applying the carve-out. If a client within a carve-out proceeds to take full advice, the adviser must charge the same as had they proceeded on a non-contingent basis.

It remains to be seen how quickly a wholesale change in behaviour or culture, which the FCA wants, will take place.

Rory Percival, regulatory expert at Rory Percival Training and Consultancy says: “To be honest I think it will make some difference but the only thing that will make a real difference is advisers having a good hard stare at themselves. 

“The problem is not a small number of advisory firms.

“It is a reasonably wide-spread issue among perfectly decent advisory firms just not doing their business well enough.

“The advice sector does not believe that is the case and does not believe they are the issue and therefore, are not improving their standards.”

Alistair Cunningham chartered financial planner at Wingate Financial Planning says contingent charging makes up just one of other adviser biases which need to be changed.

He says: “Firms that are giving substandard advice before a ban, will give it after a ban and people who give adequate advice will carry on giving adequate advice. I see the contingency charging ban, almost as an irrelevance.

“By biases, I mean the bias to gather assets under advice.

“The initial fee, be they contingent or not, are often insignificant compared with the long-term fees an advisory firm might earn from someone if they transfer out of a final salary scheme.

“That’s the biggest and most obvious one.

“Who wants to give  a recommendation to transfer or not transfer out, knowing they will never speak to the client gain?