MPs on the Work and Pensions Committee have urged the FCA to ban the use of contingent charging in financial advice in its latest report into the British Steel Pension Scheme (BSPS).
The committee has put together a 39-page report, detailing and summarising the various pieces of information and evidence it has collected on the British Steel saga over the past couple of months.
The report claims contingent charging is “a key driver of poor advice”, adding: “Genuine independence is not compatible with a charging model that only rewards advisers for recommending a particular course of action.”
According to the committee, contingent charging gives rise to an “inherent conflict of interest” and the guidance and monitoring of it by the Financial Conduct Authority (FCA) has failed BSPS pensioners.
Active Wealth, an advice firm that was accused of giving poor advice to steelworkers and has since entered liquidation, admitted 90% of its BSPS clients paid using contingent charging in a letter to Work and Pensions committee chair Frank Field.
The report revealed the average value of BSPS pension benefits transferred out was £400,000 although, in around 20 cases, the transfer value exceeded £1m. Additionally, it found advice fees were typically around 2% of the transfer value.
FCA register ‘confusing’
The report also urged the FCA to reform its register, which lists the details of all regulated financial advisers and their firm.
“BSPS trustees and members were both reliant on the register to identify which firms could conduct pension transfer business,” it said. “Both, however, said it was difficult to use.”
During a committee hearing in parliament in December, for example, British Steel shift operations manager Rich Caddy said the complex system of menus and drop-down boxes meant “you need some sort of degree to find a suitably qualified financial adviser”.
The FCA also faced criticism from adviser body the Personal Investment Management & Financial Advice Association (PIMFA), which said the register had an “inadequate” search facility and excessive use of “regulatory jargon” in the register entries.
The report continued: “The FCA online register is a potentially valuable resource but is currently very confusing. Vital consumer protection information, such as the suspensions of permissions, must be given far greater prominence.”
The committee recommended the watchdog should make any pension transfer suspensions clear at the top of register entries and in search results. More broadly, it called for the register to be redesigned entirely.
Additionally, the committee urged the FCA not to drop the requirement on advisers to start from the presumption that a DB transfer is a bad idea for their client, as proposed in its 2017 consultation.
‘Whose side’ is FCA on?
Field said he “struggled to fathom” how contingent fees have ever been acceptable for providing impartial advice on a decision such as a pension transfer.
“Our financial services regulator has been rejigged and rebranded but I can’t see much evidence of it working better for the people it is meant to protect – individuals making life-changing financial decisions,” he continued.
“To propose, as the FCA did in July last year, abandoning the adviser presumption against transferring out of a gold-plated, stable, indexed pension scheme – it really makes you wonder whose side they’re on.”
Former pensions minister now Royal London director of policy Steve Webb said although the scheme and the employer failed to make sure all members had access to “high-quality advice”, many steelworkers took good advice and chose either to transfer or not on the basis of that advice.
“It is important not to throw the baby out with the bathwater in this case,” he said. “The right lesson is to clamp down on those who seek to exploit people and scam them out of their pension savings, not to deny workers the chance to reshape their retirement plans if they wish to do so on the basis of impartial expert advice.”