A total ban on contingent charging is unlikely as it might not work well for consumers, according to Personal Financial Society (PFS) chief executive Keith Richards.
The PFS chief pointed out contingent charging gives consumers an effective way to pay advice fees.
“Contingent charging was in the regulator’s sights prior to the implementation of the Retail Distribution Review, and has been earmarked as an area of future focus for some time,” he said.
“An outright ban [on contingent charging] is unlikely, however, as that might not work well for consumers, as contingency charging provides an effective mechanism for them to pay fees after agreement and implementation of the service provided and any subsequent transaction.”
In a consultation paper in March, the Financial Conduct Authority (FCA) revealed it is considering banning contingent charging for pension transfer advice.
Earlier this year, the Work and Pensions Committee urged the financial watchdog to ban the practice, describing it as “a key driver of poor advice”, and claiming “genuine independence is not compatible with a charging model that only rewards advisers for recommending a particular course of action.”
Richards said it was unsurprising the FCA is looking at the matter closely after pressure mounted on it following the British Steel saga, which saw steelworkers unfairly persuaded to transfer out of their defined benefit (DB) schemes.
The PFS chief continued: “The PFS has been clear regarding the appropriate use of contingent charging in various guides and has always recommended that advisers should separate a DB pension transfer review fee from any dependency or expectation to transfer to mitigate the potential conflict of interest. We have always believed that this is the best way to deal with defined benefit review cases, given the regulatory starting point.
“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. The initial fee is for the advice only and contingent charging for insistent clients is of even greater risk should a future claim arise.”
‘No reason you can’t have contingent charging’
Meanwhile, Libertatum director-general Garry Heath felt the regulator should back away from the situation, and let advisers deal with their own client charging structures.
“[The FCA] is constantly trying to get between the clients and adviser, on the basis that it somehow knows best,” he said.
“My view is that if they think there are unfair contract clauses, they should be demanding special disclosure, but I see no reason why you can’t have contingent charging. I’ve spoken to members about it, and they actually said it allowed them to have different charging structures for their clients, so if the client didn’t make much money, the adviser didn’t charge much, and if the client did, then there was an extra charge to pay.
“Advisers are there to deal with their clients and advise on charging structures, can you let us do our job please?” he added.