FCA bans contingent charging
5th June, 2020
The Financial Conduct Authority (FCA) has today set out a package of measures designed to address weaknesses across the defined benefit (DB) transfer market, including a ban on contingent charging.
The contingent charging ban removes the conflicts of interest which arise where a financial adviser only gets paid if a transfer goes ahead. To address ongoing conflicts, advisers must also consider an available workplace pension as a receiving scheme for a transfer. Alongside the ban, there will also be an abridged advice process to help consumers access initial advice at a more affordable cost and there is new guidance identifying good and bad practice on transfers.
Contingent charging has created conditions that have damaged the financial wellbeing of many DB scheme members in retirement. The existence of an incentive that rewards the adviser only if the member transfers is clearly dysfunctional and we are very pleased to see the FCA ban contingent charging. Good financial advisers who in most cases will advise their clients to stay in DB schemes will now be able to properly compete. For a minority of members transfer out of a DB scheme is the best option and it is important that all members can access good quality and entirely impartial advice.
The ban will not deter the unscrupulous and so consumers and pension scheme trustees must remain vigilant and be on the look-out for pension scams, especially in the current environment.