The Financial Conduct Authority (FCA) is considering a ban on advisers charging contingent fees for pension transfers.
The regulator came under fire from MPs on the Work and Pensions Select Committee during hearings on British Steel Pension Scheme advice, in which committee chair Frank Field called for a ban on contingent charging for pension transfers amid a raft of unsuitable advice given to steelworkers.
In a consultation paper published today, the FCA said it is examining how charging structures can influence the suitability of advice, and whether a ban might be necessary.
It said: 'Given the potential harm to consumers, we are considering if it is necessary to intervene in the way charges are levied for pension transfer advice. This could mean a ban on contingent charging.'
The paper acknowledges the committee’s recommendations with regards to the conflicts of interest inherent in contingent charging models.
It adds: ‘Contingent charging results in cross-subsidies: the cost of advice for consumers who do not transfer is cross-subsidised by those who do transfer. The degree of cross-subsidy varies depending on the precise charging model.
‘Some firms that advise exclusively on pension transfers have the purest form of contingent charging model, which is entirely dependent on a proportion of clients transferring. We consider that this model has the greatest potential to incentivise unsuitable advice as such a firm would not be viable if it did not recommend a minimum number of transfers each year.’
The paper also highlights that the Financial Ombudsman Service (FOS) and professional indemnity (PI) insurers have also said that they see contingent charging as one of the most significant risks contributing to poor advice.
The regulator is seeking input from throughout the profession on whether a ban on contingent charging would help prevent consumer harm, and how such a ban could be implemented.