29 May 2018
You may have seen the recent comments from the CEO of Aviva regarding a ban on contingent charging for DB pension transfers, which leads us to wonder if those advisers who operate such a model (in its many different guises), are feeling any less comfortable than they were earlier in the year?
The first sign of this potential change was the MP’s reviewing the Tata Steel pension transfers calling for a ban on contingent charging. This was swiftly followed by the FCA Pension Transfer Consultation Paper CP18-07 in March which saw the regulator stating their consideration of banning contingent charging and asking for responses from the industry to consider the impact that contingent charging currently has, and the impact that banning or restricting this type of charging structure might have on consumers and firms.
The Pension Transfer Policy Statement paper PS18-06 issued at the same time by the FCA, confirmed that the previously proposed changes to the starting point of suitability of DB advice were being reversed, citing contingent charging being a concern as they believe that these areas are linked. Although the FCA have also added that of the cases they reviewed contingent charging did not appear to be a precursor to unsuitable advice. Confusing or what!
Speculation seemed to suggest that a ban on contingent charging may follow, although several commentators have argued implementing such a ban would be a sledge hammer to crack a nut, and that in truth suitability of advice is not related to how customers may or may not be charged, but perhaps more related to the ethics of a small number of advisers.
The merits and otherwise of contingent charging would take up more space than available here to debate, and no one single answer will ever make all parties happy.
What is worth considering is that with the regulatory requirement for an adviser to make a personal recommendation to client as to transfer or to remain within the existing scheme. If one only charges on completion of the transfer (where the greater risk/effort by advisers is perceived), then how will advisers be recompensed for all the effort and risk in a not to transfer recommendation?
Several noted advisers have discussed or even use a hybrid scheme for charging and these may be the way forwards, whilst Aviva are the first major product provider to publicly state their views, others will almost certainly be having similar discussions internally. Responses to the CP18-07 closed last Friday 25 May 2018, so it will be interesting to see the conclusion to this when the FCA report back in the autumn.