Britain’s financial consumer watchdog is thinking about banning ‘no sale, no fee’ pension reviews because so many retirement savers have been ripped off with unsuitable advice.
The Financial Conduct Authority (FCA) has moved to deal with industry concerns after claims that many British Steel workers were lured into unsuitable pensions by advisers chasing massive commissions.
The FCA agrees that contingent charging – where an advice fee is only paid when a pension transfer goes ahead – is complicated and any regulation may impact on access to advice for some consumers.
The plan is to intervene on charging structures to manage conflicts of interest that lead to advisers recommending direct benefit pension transfers to a scheme paying a large commission rather than to a more suitable scheme that pays a much lower commission.
Starting point for advice
While the regulator waits for responses to the idea, new defined benefit pension transfer rules have been published for all financial advisers to follow.
In a bid to rid the market of sharks, advisers giving pension transfer advice must have the same qualification as investment advisers.
The starting point for adviceremains leaving a defined benefit scheme is not a sensible financial decision.
Recommendations must be more personal, making them tailored advice without referring to benchmark data.
Defined benefit pension members will also see a clear report that details the benefits they will lose on leaving the scheme.
Conflict of interest
Christopher Woolard, executive director of strategy and competition at the FCA, said: “Defined benefit pensions are valuable, so most people will be best advised to keep them. However, where people are considering a transfer, it is vital that they get good advice to enable them to make an informed decision.
“We are also looking at whether further changes are needed to improve the quality of advice in this area. We recognise that there is an inherent conflict of interest when advisers use a contingent charging model, so we are asking for views on whether we should ban contingent fees for pension transfer advice. Defined benefit pension transfer advice continues to be a key area of focus for the FCA.”