Pensions - Articles - Industry comment on inquiry into Contingent charging

Comment from Aegon, Hymans Robertson and PIMFA on the Work and Pensions Select Committee inquiry into Contingent Charges

 Steven Cameron, Pensions Director at Aegon said: “We urge the Select Committee to keep an open mind in its Inquiry into contingent charges for defined benefit transfer advice. Contingent charging can create conflicts of interest, but an outright ban should be a last resort option as it will exacerbate the advice gap. Regulatory policy shouldn’t be based on stamping out isolated instances of bad practice, particularly if this could constrain how the vast majority of professional advisers serve their clients.

 “The first step should be to explore if the specific conflicts around DB transfer advice can be managed effectively. The heightened profile of DB transfer advice suitability should in itself reduce the likelihood of ‘bias’ towards advising to transfer. Furthermore, compliance departments and checks undertaken by pension transfer specialist provide further safety measures.

 “Advisers and their clients should have a range of means of paying for advice, provided these do not present unmanaged risks of unsuitable advice. Some individuals prefer to pay for advice on a contingent basis rather than ‘upfront’ and it would be unfortunate if this group found themselves barred from considering transferring.”

  Ryan Markham, Partner and Head of Member Options at Hymans Robertson: “The Work and Pensions Committee’s decision to act on some of the worrying evidence of poor advice given to members of the British Steel pension scheme is much needed and welcome news for the industry. At a headline level, a ban on contingent charging would be powerful in improving confidence in the advice market and resulting member outcomes. However, any proposed change should be considered extremely carefully to ensure it doesn’t cause any unintended harm to the market. Banning contingent charging could be highly disruptive for advisers and is unlikely to be straightforward to implement given the broader link to charging structures for managing investments and providing ongoing financial advice. An outright ban on contingent charging may also lead to a reduced number of advisers operating in the DB to DC space and a reluctance for members to take advice if they have to meet upfront costs directly. This feels a particular barrier for members with small pension pots where the costs of advice are highly material in the context of the size of their pension fund. This issue therefore needs full debate with real focus on how the availability, costs and quality of advice will be impacted if contingent charging is banned.”

 PIMFA Senior Policy Adviser, Simon Harrington said:‘We maintain the position we laid out in May 2018, namely that the removal of contingent charging will not necessarily improve the quality of advice consumers will receive or, indeed, improve their overall outcomes, and we reiterate the unintended consequences of imposing such a ban.’

 ‘Removing contingent charging without a viable way for individuals to access advice will ultimately turn people away from an absolutely indispensable part of the retirement planning process. Further, it will increase the number of insistent clients who do choose to access advice and in the worst circumstances push them towards poor advice options that will ultimately deliver to their wishes – a transfer regardless of their circumstances.’

 ‘The role of financial planning plays a fundamental part in our modern society. It enables individuals to access products, support and peace of mind at a time in their lives where uncertainty prevails. The overwhelming majority of financial planners know this and are acutely aware of their responsibility to their clients and their local communities. We are therefore concerned that the actions of a minority of errant advisers - or to use the Work and Pensions Select Committee terminology, ‘vultures’ - appear to colour the Committee’s assessment of the advice industry in general. We would urge the Committee to consider the civic good that advice plays going forward in its assessment of the industry.’

 ‘There is a wealth of independent evidence which points out the utility of financial advice and, in particular, its impact on individuals with lower levels of wealth and financial literacy. Financial advice plays an enormous role in delivering the best possible outcomes for individuals and we should strive to ensure that as many people as possible are able to access it rather than cut off avenues to it.’

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