Financial adviser trade body PIMFA has warned that banning contingent charging on defined benefit (DB) transfers would be a simplistic answer to a complex problem that would not rid the sector of criminal practices.
In its response to the Work and Pensions Select Committee’s (WPC) inquiry into contingent charging, which launched earlier this month, the Personal Investment Management & Financial Advice Association (PIMFA) has urged the committee’s members to rethink their stance on contingent charging.
Following an earlier inquiry last year, the WPC urged the Financial Conduct Authority to ban the practice because it felt advisers could be incentivised to give bad advice due to the nature of contingent charging – advisers are only paid if the client goes ahead with a transfer under a contingent model. The regulator decided against a ban, however.
PIMFA senior policy adviser Simon Harrington argued banning contingent charging could reinforce the very behaviour the committee was seeking to eliminate.
“We do not believe a ban will eliminate criminal advisers from the market,” he said. “We believe it will push insistent, desperate clients towards them. As the committee knows, major players in the British Steel pension crisis charged low fees – not contingent fees – on the promise of a transfer.
“This behaviour would, in our view, become far more prevalent in factory-gating scenarios in the event of a ban. This is something we should do everything we can to avoid.”
Harrington urged the committee instead to consider how such scenarios could be avoided in the future, adding: “We would point to recent proposals to allow individuals to access their DB pot to pay for advice or a softening of the triage process as potential solutions if they remain committed to the ban.
“Without putting in place solutions to complex problems, it remains unclear what it is the committee actually thinks they will achieve.”