Andrew McMillan, head of planning at Octopus Wealth, says he finds the FCA’s decision “odd”, with the potential unintended consequences
It’s certainly clear that there can be conflicts of interest with contingent charging. It’s also clear that defined benefit (DB) transfers are usually not to be advised for typical clients. Where they are warranted, it’s normally for those clients who have some unique set of circumstances, or who are already considerably wealthy.
The FCA’s proposal, then, is certainly well intentioned in its desire to protect clients from expensive advice that could be against their best interests. And on the face of it, I’m broadly supportive of removing elements of contingent charging from the advice process, if it’s done in the right way.
That said, it seems a little odd to create one rule for DB transfers, and another for all areas of advice. Surely the same arguments against contingent charging should be mirrored across other types of planning recommendations? This could end up inadvertently having significant consequences for other areas of the industry.
In truth then, these proposals are less about charging and more a reflection of how difficult it is to effectively monitor and regulate DB transfers — it’s the FCA’s way of curtailing bad advice.
However, there is a risk that this approach may simply lead to fewer people seeking advice at all, which could be somewhat self-defeating.
Providing advice around DB pension scheme transfers is expensive. Clients often need a great deal of education around the benefits and drawbacks, while advisers take on significant commercial risk and associated professional indemnity costs if the advice is to transfer.
These costs need to be paid for somehow, and so a ban on contingent charging will no doubt lead instead to a more expensive up-front fee — which may mean DB transfer advice can only ever be sought by the wealthy.
This would be a shame. While the majority of people shouldn’t transfer their DB pensions, there are still those who might be able benefit – and surely everyone should be able to find out.
I’d like to see a solution that doesn’t restrict access to advice. One option could be to ban contingent charges but legislate that an advice fee can be paid from the pension benefits — removing the conflict of contingent charges but still enabling more people to partake.
