FCA needs to justify proposed contingent charging ban

The Financial Conduct Authority (FCA) has been told that it needs to provide more evidence to justify its plans to ban contingent charging on defined benefit to defined contribution pension transfers.

The message has come from the Personal Investment Management & Financial Advice Association (PIMFA) in it response to the FCA’s Pension transfer advice: contingent charging and other proposed changes consultation, which closes on 30 October.

PIMFA says that as the ban would represent a significant intervention in the financial advice market, it expects the “evidential bar” to be set “significantly higher” in order to justify the change. As the proposals currently stand, the association is concerned that removing contingent charging will make the cost of transfer advice more expensive for a number of savers.

In its response, PIMFA has also suggested that the FCA is wrong to conclude that banning contingent charging will significantly reduce poor advice in relation to DB transfers. PIMFA maintains that it is difficult to prove a clear link between contingent charging and unsuitable advice.

Instead, PIMFA says that the DB transfer market would benefit from targeted and more rigorous supervision of the industry. It believes that many of the issues which are prevalent in the market will continue to be addressed after the fact if
effective regulation and targeted supervision of firms that operate in the area are not introduced.

In a thinly veiled attack on the FCA, it has also accused the FCA of overseeing a growth in unsuitable DB transfer advice. “Implicit in the argument that poor transfer outcomes are a result of poor advice has to be a recognition that this has been allowed to be perpetuated by a lack of regulatory oversight, ” says PIMFA in its response.

Simon Harrington, senior policy adviser at PIMFA has also echoed the fears of many advisers by pointing out that the removal of contingent charging could make the cost of advice more expensive for a number of savers.

“It is at odds with any pronouncements the FCA have made about a desire to close the advice gap and will ensure that pension transfer advice is solely the preserve of the wealthy,” said Harrington, adding that banning implementation fees for the vast majority of clients would push the cost of pension transfer well beyond their means.

As well as banning contingent charging, the FCA has proposed limiting firms’ ability to recommended transfers that incur unnecessarily high ongoing adviser and product charges. In some cases this can be for 20-30 years after the transfer.

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