On the go: Former pensions minister Ros Altmann has criticised the Financial Conduct Authority for being slow to ban contingent charging on defined benefit transfer advice, and allowing advice companies to operate without relevant insurance.
Baroness Altmann said the regulator’s delay until October 2020 to ban contingent charging, in which a client only pays for the advice if they go ahead with a transfer, had put consumers at greater risk.
“Tens of thousands of customers were advised to transfer out and may live to regret their decision. Contingent charging seems hard to justify,” she said.
“Commission on financial products, which was a root cause of so many financial scandals that rewarded salespeople for selling products regardless of suitability, was banned long ago.
“It is clear that paying an adviser only if the transfer goes ahead must skew incentives, but what can customers do if they have been wrongly advised?”
Her comments followed the FCA’s publication of data regarding DB transfers between October 2018 and March 2020. The figures showed that the majority (60 per cent) of advice companies used a contingent charging fee structure.
Baroness Altmann said advice should always be charged like other professions and savers should pay for the time of having an expert. She also said if people were unwilling to pay for advice, then they should stay put within their scheme.
“Requiring people to pay thousands of pounds for a detailed analysis of the risks and benefits of transferring, in light of their own individual circumstances, may put many people off, but then the worst that happens is that they do not transfer – a lower-risk outcome for all concerned,” she said.
The FCA’s data also looked at professional indemnity insurance, finding 1,191 companies (91 per cent of firms with permission) held PII. However, 119 companies (9 per cent) did not hold the relevant PII cover.
Baroness Altmann warned this could leave many clients unprotected against mis-selling. She argued that regulators needed to be more proactive and act faster to prevent obvious consumer detriment.
“I do hope the regulators will move towards a more proactive approach to protecting consumers, rather than the current tendency to be only reactive,” she added.
“Acting long after thousands of people have been put at risk is not in the public interest.”
Overall, the FCA found that the DB advice market had started to show signs of improvement, with the number of transfers, including those from insistent clients, dropping.
However, the number of advice companies operating in this area has also continued to fall as insurance costs and regulatory changes have taken their toll.
This article originally appeared on ftadviser.com
