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The Insurance Doctor will see you now

Continuing our series on the IFA’s guide to Professional Indemnity insurance, Daniel West of Apex Insurance looks at the implications of the FCA’s recent decision to ban contingent charging on defined benefit transfers (DBTs).


On 4th June, The Financial Conduct Authority (FCA) published a statement confirming their decision to ban contingent charging on defined benefit transfers (DBTs) in almost all scenarios.

With effect from 1st October this year, only consumers with certain identifiable circumstances, such as those suffering from serious health conditions or having serious financial hardship, will be exempt.

In these circumstances, advisors will be required to charge the same amount, in monetary terms, for advice to transfer as they would were the advice be non-contingent.

By introducing this ban, the FCA is removing the potential conflict of interest where a financial adviser would only be paid should the transfer go ahead.

This can be seen as great news for those advisors who are currently finding it difficult to compete in the market when advising clients not to transfer.

Abridged advice, a process aimed at filtering out clients for whom a pension transfer is unlikely to be suitable and save them paying for full advice, would fall outside the proposed ban on contingent charging.

The FCA’s final rules confirm that a pension transfer specialist must give or check the abridged advice.

“As abridged advice could represent the first stage of full advice, we believe it is more cost-effective to have a consistent approach, using a [pension transfer specialist ] across both abridged advice and full advice.”

“We recognise that, while abridged advice will not appeal to all consumers, firms may be able to attract clients who would otherwise be unwilling to pay for full advice.”

To assist those advisers giving transfer advice, the FCA has issued a guidance consultation designed to help them put in place better processes to ensure consumers get suitable advice.

This guidance should identify good and poor practice and will help firms detect any potential weaknesses in their existing advice processes.

FCA interim chief exec, Christopher Woolard, stated:

“The proportion of customers who have been advised to transfer out of their DB pension is unacceptably high”

“While much of the advice we looked at was suitable, we are still finding too many cases in which transfers were not in the customer’s best interests.”

“What we have set out today builds on the work we have been doing and reflects our determination to improve standards in this market. Customers need to have confidence that the advice they are receiving is right for them.”

“The steps we are announcing today will drive up standards.”

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