The FCA bans contingent charging
08 June 2020
As just one of a new range of measures designed to “address weaknesses” across the Defined Benefit (DB) pension market, the Financial Conduct Authority (FCA) will ban contingent charging in the majority of circumstances.
The contingent charging model means that financial advisers are only paid if a client proceeds with their recommendations and transfers their DB pension following the adviser’s guidance. This differs from the practice of advisers charging upfront when providing pension advice.
Contingent charging will be banned in most scenarios, but exceptions will be applied in extreme circumstances, such as where somebody is suffering from ill-health, or is experiencing severe financial hardship.
The FCA made the announcement with the hope that the ban will “reduce conflicts of interest” that arise under the contingent charging model. It is hoped that this will encourage advisers to give the instruction for savers to “stay put” where it suits clients best.
The ban will come into effect from 1 October 2020.
Advisers will still be able to provide an abridged advice process which should help to grant consumers access to initial advice at an affordable cost. The FCA will implement proposals relating to this in due course.
The FCA confirmed that, although many firms voiced their opposition to the ban, an equal number of firms actually supported it.
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