The Financial Conduct Authority (FCA) has held back from making any changes to its rules on contingent charging for defined benefit (DB) transfers in its latest policy paper on the subject.
In its March consultation paper on improving the quality of pension transfer advice, the regulator said it was “considering if it is necessary to intervene in the way charges are levied for pension transfer advice”. It said this could result in a ban on contingent charging.
In its final rules and guidance published on Thursday (4 October), the FCA said its initial analysis confirmed “the evidence it has seen does not show that contingent charging is the main driver of poor outcomes for customers”.
FCA executive director of strategy and competition Christopher Woolard said changes to rules on contingent charging “could have implications for the supply of advice”.
“Because of the significance of this issue to all stakeholders in the market,” he continued, “we will carry out further analysis and consult on new interventions if appropriate in the first half of next year.”
In its March consultation the watchdog said respondents to its June 2017 consultation on transfer advice highlighted conflicts of interest in the contingent charging model, whereby an adviser is only paid by a consumer if a transfer takes place.
“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,” the FCA said in March.
“We consider 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 regulator has also suggested in previous supervisory work on pension transfer advice that firms may not be managing the potential conflicts arising from their charging structures.
At the time the FCA acknowledged a ban on contingent charging could raise a number of issues such as access to advice, but said these needed to be balanced against the potential benefits, such as a reduction in unsuitable advice.