The Financial Conduct Authority (FCA) has stated that new proposals will impose a ban on contingent charging when it comes to pension transfer advice.
This will mean that pension advisers will now need to provide evidence and demonstrate as to why any scheme that is recommended to customers is better than the consumer’s workplace pension scheme.
Why has the FCA implemented this ban?
The watchdog has said that it is implementing these new rules in order to help better protect customers against potential conflicts of interest. This can happen if the financial adviser aiding them with pension transfer advice only receives money when a transfer is successful.
In a statement given by the FCA following their announcement, they said that ‘the proposed ban would apply unless consumers have specific circumstances that mean a transfer is likely to be in their best interests.’
Are the FCA enforcing other measures?
Tackling pension transfers and ongoing fees
Yes, the FCA has also stated it will be looking at the issues that can arise when a financial adviser stands to receive ongoing fees for pension transfers, which could lead to a situation where the customer does not necessarily receive the best deal available.
These ongoing fees could last for 20-30 years after the transfer has taken place, which increases the chance of conflicts of interest.
As a result, the FCA has outlined new proposals that means that financial advisors will now need to provide evidence as to how their recommended scheme is better than the consumer’s workplace pension scheme.
Providing abridged advice
The FCA has also revealed proposals that looks at addressing the issue of how financial advisers manage and provide pension transfer advice to its customers.
How does the FCA intend to tackle this? New proposals include making sure abridged advice is provided, so that companies provide inexpensive advice to customers who shouldn’t transfer their pension.
The FCA also wants more transparency in terms of the charges imposed, to make the system fairer for customers who look for pension transfer advice.
In addition to pensions, the FCA is currently reviewing car finance, guarantor loans (and non guarantor loans), rent-to-own and catalogue finance. Since the regulator started overseeing the UK financial industry in 2015, there has been a notable and successful crackdown on payday lending, consumer credit and bank overdrafts.