Controversial fee model suspected to be fuelling a pension mis-selling crisis
A controversial advice fee model suspected to be fueling a pension mis-selling crisis is to be banned under proposals unveiled by the regulator.Currently, professional advisers can operate fee models whereby their clients will only pay for pension transfer advice if they act on their adviser’s recommendation. This fee model, known as ‘contingent charging’, is an alternative to the customer having to find cash upfront to pay for advice fees, which can amount to thousands of pounds.
But on Tuesday, the Financial Conduct Authority announced plans to ban contingent charging to “protect customers” from the conflicts of interest which arise where a financial adviser only gets paid if a transfer goes ahead.
The move comes months after the regulator raised further concerns that too many people were being advised to transfer their defined benefit pension to a riskier arrangements.
“The FCA’s supervisory work has revealed continued problems in the pensions transfer advice market,” said Christopher Woolard, executive director of strategy and competition at the FCA.
‘By making changes to the way advisers are paid for transfer advice and the other changes to transfer advice we are proposing today, we want to ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so.”
On Tuesday, the FCA also announced other measures to address the “conflicts of interest” which arise where a financial adviser advising on a pension transfer stands to receive ongoing fees — which in some cases can be for 20-30 years following the transfer.
It has proposed that advisers will be required to demonstrate why any scheme they recommend is more suitable than the consumer’s workplace pension scheme.