LONDON (UK) – Britain’s markets watchdog has banned contingent charging after lawmakers criticised financial advisors for ripping off steelworkers facing critical decisions about their pensions.
Contingent charging refers to financial advisers not earning their fee unless they recommend a specific course of action for an accrued defined benefit pension.
“The ban will remove the conflicts of interest which arise where a financial adviser only gets paid if a (pension pot) transfer goes ahead,” the Financial Conduct Authority (FCA) said in a statement.
“It will also help good advisers, who will often advise (pension holders) to stay put, to compete.”
In a 2018 parliamentary report, lawmakers criticised the FCA for being too slow to prevent “vulture” advisers ripping off steelworkers in Port Talbot, Wales, by forcing them to choose between moving their British Steel pension to a new company scheme or joining a lifeboat scheme.
A lifeboat scheme is one set up by the government to protect pension benefits accrued by members when their employer becomes insolvent.
The FCA said on Friday that in reviewing pensions advice given in defined benefit cases across the market, it found that the percentage of clients given unsuitable advice in the British Steel scheme was higher than those in the rest of the sample.
The watchdog will write to 7,700 former members of the British Steel scheme to help them to revisit the advice they received, and to complain if they have concerns.
The FCA is undertaking 30 enforcement investigations arising from its scrutiny of the defined pensions advice market.
The watchdog had said in 2018 that evidence did not show that contingent charging was the main driver of poor outcomes for customers and would carry out further analysis.
(Photos syndicated via Reuters)