FCA confirm ban on contingent charges for DB transfers

The ban is being implemented in line with the original proposals outlined in CP19/25, although the implementation date has been moved to 1 October 2020 because the original timescales where not feasible. There will be a transitional period for advice started before 1 October 2020, but the personal recommendation must be made by 1 January 2021.

The charges made must not be on an hourly basis, because more or less work would be done depending on the outcome. This effectively means that if full advice is given then it needs to be charged on an average number of hours usually taken, so effectively a fixed fee. Although percentage charging has not been banned because the FCA feel that this would disadvantage smaller pots.

There are still some carve out options where contingent charging could be used:

Serious ill health carve out – this allows those in serious ill health to get advice on a contingent charged basis. The major change here is that the client can self-certify providing evidence to the adviser of their health circumstances.

Serious financial hardship carve out – this allows those in serious financial hardship to again receive advice on a contingent charged basis. The definition of financial hardship has been eased from the original proposals and now should reflect the MaPS definition of Over Indebtedness.

The proposal for an Abridged advice will also be taken forward.  Abridged advice is designed to give those that want to consider a transfer the option to get some advice without the full process and fees involved.

The adviser can take into account the client’s circumstances and the Policy Statement has now confirmed that the adviser can consider ceding scheme information. However, they are not allowed to produce an Appropriate Pension Transfer Analysis, Transfer Value Comparator or consider where the transfer would go should it be recommended.

The result of abridged advice can only be a recommendation not to transfer or that it is unclear.

Charging for abridged advice is more flexible and could even be free, in addition any charges made can be offset against the charges for full advice should the case proceed to that. The FCA have made it clear that this isn’t a way to avoid the ban on contingent charging and still expects many cases to result in advice not to transfer even if they proceed to full advice following initial abridged advice.

Abridged advice will become an option from 1 October 2020 and is not available before then.

In addition to the above the policy statement also covered measures to

• require firms to consider an available workplace pension scheme as a receiving scheme for a transfer;
• empower consumers to make better decisions by improving how advisers disclose charges and requiring checks on consumers’ understanding during the advice process; 
• enable advisers to give better quality advice and improve professionalism by introducing specific continuing professional development on pension transfer advice; 
• set up new data collections that advice firms must provide to the FCA to improve their ability to supervise the sector;