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Proposed contingent charging ban – increased negative perception amongst advisers

10 February 2020

The view that the FCA’s proposed ban on contingent charging will reduce access to defined benefit transfer advice has increased amongst financial advisers, with four out of five advisers believing it will negatively effect access, according to Aegon.

Research published by the retirement specialist showed 84% of the 227 advisers surveyed believe an end to contingent charging would prevent clients who are unable to pay upfront from seeking advice. This is a significant increase on the 67% of advisers who said the same in 2018.

The FCA recently consulted on proposed measures to change how advisers manage and deliver pension transfer advice, including a ban on contingent charging and the introduction of a short form of “abridge advice” to help advisers quickly identify which clients should not consider a transfer.

Abridged advice was met with a mixed response from advisers, according to Aegon, with 46% believing it will be effective in identifying clients who are unsuitable for a transfer, with a further 35% not sure. Just 19% thought it would be ineffective.

Steven Cameron, pensions director, Aegon, urged the FCA to take into account advisers’ views before finalising their rules.

He said: “No matter how well intentioned these interventions are, advisers remain concerned over some of the measures, particularly as they carry the risk of dramatically reducing the supply of advice. We would encourage the FCA to take on board the concerns of advisers ahead of finalising their next set of rules.

“The market is divided on whether or not contingent charging should be allowed for advice on transferring from a DB scheme. But what is clear is the overwhelming majority of advisers feel a ban will reduce access to advice. The issue is that some individuals aren’t able to pay upfront for advice and without the option of contingent charging, won’t seek it.

“Advisers also need more detail on how the ‘carve-outs’ from the ban will work. The FCA needs to frame these in a way that makes them sufficiently objective for advisers to use with confidence, without being unduly prescriptive.”

The FCA has also proposed strengthening its existing requirement for advisers to consider a workplace pension scheme (WPS) as a destination for pension transfers and suggest that a default fund is likely to be the most suitable option.

However, (71%) of advisers were of the opinion that investing in the default fund within a workplace pension scheme would be unlikely to represent the best advice for those choosing to transfer into a workplace scheme. For clients who are within five years of drawing an income, over two thirds (68%) of advisers believe transferring into a workplace pension scheme will be less appropriate.

As such, Aegon’s research showed that nearly two thirds (64%) of advisers thought proposed regulations biased towards using workplace pensions for DB transfers would reduce their ability or willingness to offer advice.

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