The Financial Conduct Authority will ban contingent charging on defined benefit transfers in all but a few pension transfer scenarios but will allow abridged advice as another route for consumers to have access to lower fees.
In a policy statement, the regulator confirmed it will ban contingent charging in most circumstances, with only consumers with certain identifiable circumstances, such as those suffering from serious ill-health or experiencing serious financial hardship, being exempt.
In the minority of cases where contingent charging is permitted, advice firms will have to charge the same amount, in monetary terms, for advice to transfer as they charge when the advice is non-contingent.
The ban will come into effect on October 1, 2020.
Contingent charging means a client only pays for the advice if they go ahead with a transfer.
The FCA said by introducing this ban it will remove the conflicts of interest which arise when a financial adviser only gets paid if a transfer goes ahead.
It said the move would also help good advisers, who often advise to stay put, to compete in the market.
However, the regulator is introducing proposals to allow advisers to provide an abridged advice process which it says “will help consumers access initial advice at a more affordable cost”.
Abridged advice would fall outside the proposed ban on contingent charging as the regulator expects costs will be much lower and it can only result in a recommendation not to transfer.
This new type of advice will include an introductory chat with the client, where the adviser can get some high-level information about their circumstances and determine that the consumer isn’t a viable candidate for a transfer.
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