Contingent charging just another 'adviser bias'


Contingent charging shouldn’t be banned, as advisers who want to advise on a pension transfer will do so regardless of the fee structure, Simon Harrington has said.

The senior policy adviser at the Personal Investment Management & Financial Advice Association was discussing the  impact on the industry of a possible contingent charging ban on the latest FTAdviser Podcast.

Mr Harrington said: "We are concerned that it [a contingent charging ban] will make people turn away from financial advice, that it has the potential to actually increase the probability of insistent clients and we take the view that it may in turn lead to worse outcomes."

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Contingent charging means a client only pays for the advice if they go ahead with the transfer, which the FCA is concerned could create a conflict of interest and lead to more people being told to transfer.

Appearing on the podcast with Mr Harrington was Alistair Cunningham, financial planning director at Wingate Financial Planning.

He argued that a ban on contingent charging doesn’t achieve anything.

He said: "A ban on contingent charging is easily gamed, people would just end up charging small non-contingent advice fees.

"What we are talking about when entertaining the discussion around the contingent charging ban is biases and contingent charging is just one of many, many different biases that an adviser will have.

"What we should be really thinking about is how does a firm maintain and control what biases they are exposed to, and how that will not ultimately end in consumer detriment."

Mr Harrington argued if the adviser is minded to advise on a transfer, they will do it anyway, regardless of charges structure.

He said: "If the adviser follows the suitability requirements set up by the regulator then they should be making prudent decisions which are ultimately in the interest of the client."

The regulator's stance on contingent charging is that advisers should work from an assumption of no transfer but it has been clear in the past that both advice to transfer and to not transfer must pass the suitability test.

The FCA had consulted the industry on contingent charging last year but decided against a ban in October, despite finding widespread problems in the suitability of pension transfer advice.

The regulator then stated it will consult on this topic again if it considers that changes are needed.

But the Work and Pensions select committee has warned it will push for legislation on a contingent charging ban if the Financial Conduct Authority doesn’t act.

Mr Harrington noted "there is a train of thought that prevails in certain circles in this debate which basically says that if you eliminate contingent charging, then ultimately everybody ends up getting great outcomes and bad advisers will disappear from the market".

But he added: "Bad advisers are bad advisers, they take up a very small proportion of what is otherwise a very well meaning, extremely highly professional set of people. But they do exist. If you remove this, they will find another way."