On the go: The Work and Pensions Committee has launched an inquiry into contingent charges for defined benefit transfer advice.
In February, the select committee called for contingent charging to be banned in the wake of the British Steel Pension Scheme scandal.
It found that a “supposedly independent” financial adviser could be incentivised to give bad advice, such as suggest a DB to defined contribution transfer, because of the way their fees were structured – for example being paid, or paid more, if the person decided to take a transfer.
The Financial Conduct Authority launched a consultation in response to the committee’s findings.
However, alongside feedback from this consultation, published in October 2018, the FCA announced that it would not introduce a ban and said it “needs to carry out further analysis of the issues”.
It summarised the pros and cons of a ban and said responses to the consultation highlighted the “complexities and interlinked issues that need to be worked through and considered”.
In particular, there was a lack of evidence linking contingent charging to unsuitable advice and bad outcomes.
The select committee’s recently launched call for evidence, designed to help the FCA with its next steps, wants to hear from anyone who has been affected by contingent charging and it seeks views on introducing a ban.
Frank Field MP, chair of the committee, said: “The FCA has confirmed to me that it shares many of the committee’s concerns about the scourge of contingent charging. But to tackle this, and to protect consumers from the vultures circling around their pension pots, it needs more proof of what is really happening to people.”
He added: “It has explained to me the complexities of contingent charging, and how it needs to carefully consider its possible interventions so as not to cause unintended harm, particularly to vulnerable customers. The FCA has said it would welcome the committee’s help to find out more, and we’ll be happy to do everything we can to make sure we get the right safeguards in place.”
Ryan Markham, partner and head of member options at consultancy Hymans Robertson, said: “At a headline level, a ban on contingent charging would be powerful in improving confidence in the advice market and resulting member outcomes.”
However, he noted that any proposed change should be considered very carefully to ensure it does not cause any unintended harm to the market.
“Banning contingent charging could be highly disruptive for advisers and is unlikely to be straightforward to implement given the broader link to charging structures for managing investments and providing ongoing financial advice. An outright ban on contingent charging may also lead to a reduced number of advisers operating in the DB to DC space and a reluctance for members to take advice if they have to meet upfront costs directly,” Markham said.
The deadline for written evidence is January 31 2019.
