Personal Finance Society  

Contingent charging still 'attractive' for clients


Adviser should not shy away from using contingent charging in areas other than defined benefit transfers, according to the head of the Personal Finance Society. 

Keith Richards, the PFS's chief executive, said contingent charging outside of DB transfers was often a "more attractive" choice for clients and the advice profession should not step away from using it as an option, despite concerns raised by the Financial Conduct Authority. 

In July the regulator published a consultation paper in which it announced proposals to ban contingent charging on defined benefit transfers, warning too many consumers were being advised to leave their pensions against their best interests. 

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

The regulator has suggested exempting specific groups of consumers from the ban, such as individuals suffering from serious ill-health or experiencing serious financial hardship.

Mr Richards said: "I think there is a move away from contingent charging because there are some advisers in the market who suspect that at some point this will reach into a much broader review of ongoing charges and contingent charging. 

"We do hear those noises coming from the regulator, even in this latest review there has been a challenge over potential conflicts of interest for ongoing remuneration that can be earned from transferring as opposed to just the transactional fee."

But Mr Richards said contingent charging still played an important role in the wider advice market and, as long as there remains "complete transparency" as to the true cost of advice, there should be no reason why using it more broadly would be "under attack or suspicion". 

He said: "Outside of pension freedoms, over 85 per cent of new clients for many firms came from existing relationships - they were referrals and people who already had an identifiable need for professional advice.

"They usually had asset values and propensity to pay for the advice because they had an introducer who explained what it was about. 

"So in the initial consultation, whilst many advisers would do it at their own expense or obviously at no cost to the introducing client, often at the outset from the initial approach there was a clear need to do something and buy the services of an adviser.

"So the option of contingent charging often is a more attractive one for the client and we shouldn’t step away from that. But of course many advisers do provide different fee solutions, what we shouldn’t do is restrict the choice of the public."