• Financial advisers will be banned from charging clients only when a defined benefit (DB) transfer goes ahead from 1st October 2020
• Carve-outs in the rules designed to protect the most vulnerable – including those in ill-health and facing financial hardship
• FCA acknowledges some people who may have benefitted from a transfer will likely be discouraged from taking advice as a result
• ‘Abridged advice’, increased disclosure requirements and workplace pension comparison will also be introduced in the DB transfer market
Tom Selby, senior analyst at AJ Bell, comments:
“While the FCA was unable to find a smoking gun in its data analysis of defined benefit transfers and contingent charging, it has been clear for some time the regulator is uncomfortable with the inherent conflict of interest that exists within the fee model.
“Banning contingent charging was always a balancing act for the regulator, potentially reducing the number of customers who receive inappropriate advice but at the same time creating the real risk people who would be better off transferring are unable to pay for advice as a result.
“In fact, the FCA acknowledges it expects 1 in 3 people who no longer take advice as a result of its proposals could have been financially better off by transferring out of their DB scheme.
“But given the regulator’s starting point here is that people shouldn’t transfer, its conclusions with regard to contingent charging are not a surprise.
“It’s important to note that while the FCA has raised concerns about the DB transfer market as a whole, there remain circumstances when it is in someone’s best interests to give up their guaranteed pension in favour of the flexibility and death benefits available through defined contribution schemes.”
