Paraplanner Nathan Fryer has called for people “on the ground” policing what is going on between advisers and clients as “unfortunately you can’t enforce ethics in regulation”.
Commenting on the Financial Conduct Authority’s (FCA) consultation on banning contingent charging, the Informed Choice paraplanner described the plans as a “good thing,” but added it was “quite a blunt instrument in terms of how to tackle [conflict of interest issues].”
This morning, (30 July) the regulator said it was consulting on banning contingent charging for defined benefit (DB) transfer advice. It expressed concern too many advisers were delivering poor advice – much of it driven by conflicts of interest in the way they are remunerated.
The FCA described contingent charging as “an obvious conflict of interest” and, as such, argued the practice should be banned except from specific groups of customers with “certain identifiable circumstances.”
Fryer pointed out that, compared with the number of advisers advising on DB transfers, the FCA did not have the resources to be able to police the market effectively.
“The carve-out for those with ill health and those that maybe can’t afford it is a good thing,” he said, adding that the ideal solution would be to have the people “on the ground policing what is going on as, unfortunately, you can’t enforce ethics in regulation”.
For his part, Personal Finance Society chief executive Keith Richards warned of the consultation paper’s potential wider implications for advisers.
“The wider profession has for a long time acknowledged that contingent charging is an area of potential conflict and, in such circumstances, we need to demonstrate diligence and due process of mitigation,” Richards said.
“The additional suggestion, or at least perception, that advisers could also be conflicted by the longer-term earning potential of a transfer is not isolated to contingent charging and this particular aspect of the review could have even wider implications going forwards.”
‘Imaginative and proportionate’
Meanwhile, adviser firm LEBC Group welcomed the FCA’s proposed ban on contingent charging for pension transfer advice, calling the proposals “imaginative and proportionate”.
It said banning contingent charging was a proportionate response to create “a safe space” in which consumers could obtain the impartial advice they deserve.
LEBC Group director of public policy Kay Ingram said: “Those who opposed the ban have said that it could cause hardship to those who cannot genuinely afford to pay for advice.
“We have always believed that other solutions could be found for that minority of cases where a transfer is in the interests of the consumer, and we feel the FCA has risen to this challenge by creating exceptions for those with severe debt or health problems.”