A troop of CEOs have paraded accross New Model Adviser in the past week, all claiming that banning contingent charging would stop advisers working in the mass market.
Meanwhile Prudential research suggests that half of financial advisers report that they would do less DB transfer business if contingent charging was banned.
Considering the FCA’s contention that around half of the advice given on DB transfers is flawed and that a high proportion of the recommendations to transfer should not have happened, the FCA must feel satisfied that their proposals are on the money.
Who benefits from transfers?
While the CEOs have been speaking to IFAs via the trade press, explaining how supportive they are of IFAs spreading the transfer love, they have also been speaking to analysts about the drop in new business from the slowdown in CETV transfers they’ve been receiving this year. It is – it seems – something that was not expected to happen.
As we all know, the reason the flow of CETVs is slowing is because professional indemnity insurers are restricting the numbers of CETVs , forcing IFAs to ration advice. Did the retail divisions of these providers ever think the levels of CETVs they received sustainable?
The ban on contingent charging will simply restrict the numbers of CETVs recommended, it would have little to no impact on the broadening of ongoing financial planning. The vast majority of CETV money is now with insurers or in DFMs and generating ongoing fees which benefit insurers, DFMs and financial advisers but were never designed for the mass market clients that SJP, Royal London, Quilter and SimplyBiz believe would be excluded.
The FCA and workplace pension schemes (WPS)
In a bizarre twist of logic, one independent adviser is now accusing workplace pension schemes from excluding them using them.
If workplace schemes were forced to have to pay adviser fees, I wonder how many workplace schemes would become suitable and clients would get better outcomes?
— Nathan Fryer 👨💻 (@fryer_nathan) August 16, 2019
From the conversation I am reading, the problem is around the FCA’s insistence that these cheaper products are considered in IFA’s recommendations and that IFAs will have to explain why they have not chosen what on the face of it look cheaper solutions to the ongoing management of money. This is reckoned an irrelevance by another IFA
This is a point in 19/25 which is getting disproportionate coverage I haven’t had any cases we we recommended transfer where the person was a member of a WPS/ or had one that could take a TV.
Mind you they were all 55+
— rob reid (@reidremoney) August 16, 2019
Where exactly the customer stands in all this is unclear,
Workplace schemes are hidden
Another adviser rightly points out that at the time of BSPS’ Time to Choose, steelworkers – who by and large were in WPS were not offered them.
With BSPS, I remember was that both Aviva (Port Talbot) and L&G (Scunny) offered both initial charges and ongoing charges to an advisor. They explained very clear they are not bound by AE regulations to cap cost on transfers in, just on the AE fund.
— Eugen Neagu (@BespokeFS) August 17, 2019
He is right. I wrote about this at the time and you can see from what I wrote then that it wasn’t just the IFAs who were avoiding WPS, the insurers and the employers were scared silly of their products being used too! Please read the article below.
At the time – Michelle Cracknell called out the scandal of the unused Tata and GreyBull workplace pensions. It has taken nearly two years for the FCA to swing round its guns but now it has.
The questions that need to be answered by these CEOs
- Why did you take CETVs onto your platforms without question?
- Why did you not promote WPS alternatives – when you had them?
- Are you reviewing the suitability of your products recommended?
- Will you consider restricting charges on those products to WPS default levels?
If you cannot answer these questions, then I wonder whether your commitment to mass-market advice is anything more than a sham. Contingent charging looks like backdoor commission and your arguments for “broader advice” sound like volume and margin preservation to me.
Margins and volumes preserved by vulnerable customers who should not be in your products.
I am unconvinced that in a low return environment where the yield on an annuity is around 2.5% nominal, charges of 2.0% pa + on drawdown (let alone accumulation) can ever be in the client’s best interest. But what I see reported to me by those who have transferred and the IFAs and solicitors who are trying to sort out the problems of 2016-18 is that such charges are common.
It would be better if – instead of arguing for more of the same – insurers, SIPP managers and IFA compliance services faced up to the reality of the situation which is that billions of pounds is in the wrong kind of policies, in the wrong kind of funds with the wrong kind of fees.