LONDON (Reuters) - Britain’s markets watchdog has proposed banning financial advisers from getting paid only when a customer moves a pension pot, a practice known as contingent charging that it said cost consumers two billion pounds a year.
Lawmakers called for the ban last year after accusing the Financial Conduct Authority (FCA) of being too slow to prevent “vulture” advisers from ripping off steelworkers in Wales who were faced with critical decisions over their pensions.
The lawmakers singled out contingent charging, where advisers are only rewarded when recommending a particular course of action, saying it should be banned for advice on transferring a defined benefit pension.
The FCA said on Tuesday it proposed the ban to crack down on conflicts of interest in the pensions sector, where consumers have recently been given more leeway to move their pots of saved cash between schemes or take out their money.
“The FCA’s supervisory work has revealed continued problems in the pensions transfer advice market,” said Christopher Woolard, the FCA’s executive director of strategy and competition.
Most consumers are advised on a contingent charging basis, with nearly 70% getting a recommendation to make a transfer even though they would be best advised not to move their pension, the FCA said.
The proposed ban is part of a package aimed at improving the quality of advice for people who want to move their pension.
It also addresses conflicts of interest that arise where a financial adviser stands to receive on-going fees, in some cases for decades, once a transfer has been made.
“The FCA has proposed that advisers will be required to demonstrate why any scheme they recommend is more suitable than the consumer’s workplace pension scheme,” the FCA said.
After a public consultation on the proposals, the FCA will issue final rules in the first quarter of 2020.
Reporting By Huw Jones; editing by Sinead Cruise and Andrew Heavens