The Financial Conduct Authority (FCA) has proposed a ban on contingent charging for pension transfer advice to protect consumers from so-called vulture advisers who only got paid if the transfer went through.
The move comes after the FCA faced criticism from lawmakers in October 2018 when the British financial watchdog decided against including a ban on contingent fees in its new set of rules. The criticism suggested that the old rules meant that sellers were incentivized to organize a transfer even when that was not in the best interest of the consumer.
At the time, Frank Field, a Labour MP and chairman of the Work And Pensions Select Committee, said, “Having seen the fate that befell British Steel pensioners, the Committee called on the FCA to take urgent action to ban contingent charging. Instead, the FCA has buried this in the long grass, even as unscrupulous advisers are circling like vultures around consumers. It’s time the FCA took decisive action to prevent another misselling scandal.”
But now the FCA has changed its position. Christopher Woolard, executive director of strategy and competition at the FCA said, “The FCA’s supervisory work has revealed continued problems in the pensions transfer advice market. By making changes to the way advisers are paid for transfer advice and the other changes to transfer advice we are proposing today, we want to ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so.”
The proposal is a part of a package of ideas aimed at protecting consumers and improve the quality of pension transfer advice. Other measures include introducing abridged advice so that firms can deliver low cost advice to customers who should not transfer, improving how charges are disclosed and setting out how advisers should demonstrate customers’ understanding of the advice.
The FCA consultation will run until October 30 2019.
Copyright © 2018 RegTech Analyst
