Personal Finance Society  

PFS advises isolating pension transfer fees

PFS advises isolating pension transfer fees

Advisers should separate their pension transfer review fees from any ongoing fees to mitigate for conflicts of interest, the chief executive of the Personal Finance Society has said.

Keith Richards said, in response to yesterday's (26 March) consultation on rules for defined benefit pension transfers from the Financial Conduct Authority, that he was not surprised contingent charging was in the regulator's sights.

The FCA said it was considering a ban on advisers charging for pension transfer advice on a contingent basis given what it said is the "potential harm to consumers".

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Mr Richards said: "Contingent charging has been earmarked as an area of future focus for some time, especially with the growing concerns surrounding the unintended consequences of pension freedoms.

"With the current scrutiny surrounding defined benefit schemes, it is of little surprise that the FCA have chosen to include them in this latest consultation, especially in the wake of the Work & Pensions select committee's recent review of the British Steel Pension Scheme.

"The Personal Finance Society has been clear on the matter from the outset and recommend the separation of review fee from any ongoing fee - to help mitigate the potential for client confusion or a conflict of interest - in their 'pension transfer good practice' guide issued in February 2017.

"The PFS believe this is the best way to deal with defined benefit review cases.

"If a consumer is not prepared to pay a separate fee for a professional review and personal recommendation of suitability, an adviser's alarm bell ought to be ringing and they should disengage.

"To continue will leave them potentially conflicted, under an insistent client basis."

Yesterday (26 March) the FCA published new rules on pension transfer advice and launched a consultation on additional changes, including adviser charging structures.

The watchdog retreated from plans to change its assumption that defined benefit transfers are usually unsuitable.

Mr Richards said: "As the regulator reverts to its original starting position regarding the transfer of a defined benefit scheme, it does beg the question as to why a clearer stance was not taken on the issue of 'insistent clients', particularly regarding the use of contingent charging for the initial review and recommendation."