Advisers have dismissed calls by MPs to ban contingent charging saying it is not the root problem with pension transfers and would exclude more people from accessing financial advice.
The comments followed the latest report from the Work and Pensions Committee on the British Steel Pension Scheme (BSPS) saga, in which MPs urged the Financial Conduct Authority to ban the use of contingent charging in financial advice.
Contingent charging – when a client only pays an adviser charge when they buy the recommended product – was not, however, the root problem of poor advice, said Red Circle Financial Planning Chartered IFA Darren Cooke.
“I understand the argument although I disagree with it,” he said. “I don’t necessarily think contingent fees are the problem and there are certain clients where not having this would exclude them from advice, if they cannot afford the upfront fee.”
Cooke said it was more an issue of advisers “doing the right thing”, in terms of whether recommending a pension transfer was suitable for the client and that for some advisers, their “eye is on the money”.
“We are fortunate enough to work in an industry where if you do the right thing, often enough you’ll still earn a lot of money. You don’t need to screw people over to earn a lot of money in this business,” he commented.
Cooke added: “I would rather do the work for that client on a contingent basis and if at the end of that process I turn around to that client and say the answer is do nothing, I don’t get paid – that is absolutely fine.”
‘Not one size fits all’
Yellowtail Financial Planning managing director Dennis Hall agreed an “outright” ban on contingent fees would serve only to exclude more people from advice.
“I think the problem is that Frank Field and anyone else out there is looking for a one-size-fits all solution and it doesn’t exist for something like this,” he said.
While Hall said this solution would suit some clients’ circumstances, there may be others for whom a pension transfer would be suitable but who were not able to afford an upfront fee.
“If you ban contingent charging you’re going to prevent those people from getting the advice they need,” he argued. “The problem is a small number of rogue advisers, which may actually impact on other’s people’s ability to access advice.”
Hall added: “We’ve already seen moving from commission to fees has restricted the ability for less wealthy members of society to access advice and they have to turn to guidance instead.”
He suggested adopting a ‘fiduciary standard’ – requiring advisers to put their client’s interests above their own – would be a better solution and taking all permissions away from any adviser that breached this standard.
“That’s something the regulator has shied away from but I think it’s another step in shaking out the bad apples,” he said.
Does not ‘justify contingent charging’
LEBC director of public policy Kay Ingram, however, agreed with the call for a ban.
“For many defined benefit pension scheme members, staying in the scheme for the majority of their working life and retaining the promise of a guaranteed retirement income is the right thing to do. It is only when retirement is near-term and there are special personal circumstances that may make a transfer beneficial to the member or their family, that individuals should consider whether a transfer will be in their interests,” said Ingram.
“We understand the argument used by some, who charge contingent fees that not everyone has the funds available to pay for advice out of their own pocket. We do not agree that this justifies contingent charging.”
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