With just under one month to go until the contingent charging ban, our adviser Neil Edmondson explains what this might mean for you.
The ban is set to come in to force on 1 October 2020 and, in layman’s terms, means that firms will be required to charge the same amount for advice on pension transfers and conversions, regardless of whether the advice results in a recommendation to transfer or not.
Contingent charging is most relevant when looking into the realm of Defined Benefit advice. It is a model whereby financial advisers are paid following the transfer of the defined benefit pension and is an alternative to charging a client for pension advice ‘up-front’, due to the fact that this type of advice can cost thousands of pounds. It comes in to play when a client only pays for the advice they’ve received if they decide to go ahead and transfer their pension pot.
The Financial Conduct Authority feel that by introducing a ban on this type of charging, it will remove the conflict of interest which arises when a financial adviser is remunerated upon transfer only. The FCA states that this charging structure has led to poor pension advice, but for others this has meant that they’ve received, essentially, free pension advice.
The FCA stated that ‘The practice of contingent charging, where advisers only get paid if a transfer proceeds, creates an obvious conflict. By making changes to the way advisers are paid for transfer advice, and the other changes to transfer advice we are proposing today, we want to ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so’.
For me, its important that my clients know exactly what their advice will cost and the value of that advice when measured against their own circumstances, regardless of the potential outcome to ‘transfer or not’.
David Allen Financial Services (Dalston) Ltd (Registered in England & Wales, Company Number 06966976) has its registered office at Dalmar House, Barras Lane, Dalston, Carlisle CA5 7NY. The company is authorised and regulated by the Financial Conduct Authority. Firm Reference 506138.
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