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Three IFAs explain why they avoid contingent fees for DB transfers

Three IFAs weigh in on why they avoid contingent fees on DB transfers, and give their verdict on the Work and Pensions Select Committee's proposal to ban them.

Contingent fees on DB transfers have long polarised advisers, so today's announcement that Work and Pensions Committee wants the Financial Conduct Authority to ban the practice will divide opinions.

When we asked IFAs at the New Model Adviser® conference in January whether they thought contingent charging should be banned a small majority said there should not be any ban. 

But many of the advisers New Model Adviser® spoke to about the committee's proposal backed the idea. Here three advisers give their thoughts, and set out how they charge for DB transfer advice.

Contingent fees on DB transfers have long polarised advisers, so today's announcement that Work and Pensions Committee wants the Financial Conduct Authority to ban the practice will divide opinions.

When we asked IFAs at the New Model Adviser® conference in January whether they thought contingent charging should be banned a small majority said there should not be any ban. 

But many of the advisers New Model Adviser® spoke to about the committee's proposal backed the idea. Here three advisers give their thoughts, and set out how they charge for DB transfer advice.

Alasdair Walker, director, Hunter Aitkenhead & Walker

'Some charging is likely to need to remain contingent regardless. I can only speak for ourselves but we charge a fixed fee for financial planning and DB assessment, and a proportional fee if a transfer proceeds. Charging structures should be reflective of work undertaken, and if an adviser is only paid if transfer goes ahead, the potential bias introduced is concerning.

'That said, I'm not sure how effective a "ban" would be, or if the committee truly understands adviser remuneration and the many forms it can take.

'Fees should somewhat approximate work undertaken. Ad velorum charging is one way of doing this (and one we use specifically). However, to charge nothing for the work up to the point of transfer gives no value to it, which is why we structure our fees as we do, and openly publish them online.

'If we charged exactly the same whether the transfer proceeds or not, the fees stop being an approximation of work done/costs because we don't take on the same regulatory or insurance burden, or amount of work, if the transfer doesn't proceed.'

Dominic McLoughney, director, Becketts Financial Services

'I believe upfront, non-contingent charging is the best way to ensure any biases and conflicts of interest are removed - we operate that way at Becketts FS with a fee payable irrelevant of the advice given.

'We try to provide a screening process for cases prior to clients committing to a fee and this has definitely helped; it adds a cost to us but it’s something we are willing to absorb. We have found that the fixed fee can cause clients to look towards alternative options and ones that are not necessarily in their best interests. 

'Contingent charging as a concept is fine but only if the person providing the advice does so in an unbiased manner - my only worry with banning it is that it may well, again, restrict advice to only those who can afford the fee, and that doesn’t really fall in line with treating everyone equally.

'But regulating down to the lowest denominator seems to be the only way to protect the masses and so until we can change that I am not sure I see a great alternative.'

Tom Wilcox-Jones, director, White Oak Financial Planning

‘People want to come and get a balanced opinion about whether or not a transfer is the most suitable thing to do. As a business, I can’t give them that research, time and effort that goes into producing the report for nothing. I need to charge for my time.

‘If you say you’ll do that free and, if the transfer is a good thing to do, only then will you charge, as a business I don’t know how you survive in those instances where a transfer doesn’t take place. You can’t escape that there is a conflict of interest there.

‘There are cases that you can almost screen out and identify that a transfer won’t be suitable without doing the full report, but once somebody employs you for your full impartial advice, that first question needs to be answered and it takes time, energy, experience, all the things that you’re selling. To me, you have to charge for that.

‘You’d like to think that even advisers charging on a contingent basis are still putting the client’s best wishes to the forefront and any transfer they recommend is justifiable, and the files could show that. But separating the fees removes that potential conflict of interests, whereby you only get paid if the transfer goes ahead.

‘I think it is strange that an adviser could go through the whole process, all those hours of research, and then turn around and say “you shouldn’t transfer, so no worries, just don’t bother paying me”. If people can run businesses that way, then that’s their business decision, but I can’t afford to do that.

‘I have just been working on a case that has taken me a long time to research. It was a close call, and I have also been in lengthy consultation with colleagues, but I am going to be recommending that the guy shouldn’t transfer. I couldn’t have done that on the basis of goodwill - it has required too much work to do for free.’

Wilcox-Jones created a debate in our comment section when he criticised contingent charging in our recent adviser profile. You can read it here

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