Secondly, the adviser is dealing with someone who really does not want to be a client and is loathe to pay much for the service. The adviser will want the consumer to become a full client – particularly with the need to provide a personal recommendation – while the client perhaps just wants the one transaction.
It is also very much a sellers’ market with the demand for advice outstripping the supply. There will now be a delay in increasing such supply as more firms decide whether it is worth their while being involved. There are then all of the regulatory requirements to meet and pension transfer specialists to recruit and train.
With more cash flow modelling, more stochastic modelling and no easy way into the market, it has been suggested that the new proposals will increase the price of such a service.
In my view we need a market where consumers understand why they need to get advice, are confident that the advice they are getting is right, suitable and unbiased, and that they are paying a price with which they are comfortable. The ongoing Financial Advice Market Review (FAMR) has as one of its aims: “To stimulate the development of a market to deliver affordable and accessible financial advice and guidance to everyone.” For me, this CP on pension transfers is a missed opportunity to develop this further.
Consumers need to know the advantages and disadvantages of transferring before entering into such a fee-paying arrangement, as well as the factors that will be discussed. It is also important to understand that the advice is the product, not the resulting pension contract.
On this point the FCA should also have looked at the concept of contingent charging, where advisers are only paid when the transfer goes ahead, and whether this creates a risk of bias towards recommending a transfer. AJ Bell research showed that some 50 per cent of advisers operate on this basis.
A good model would be some form of short questionnaire to assess the attitude of the consumer and also to provide an indication of how things might proceed. It could also make the contractual nature of entering into such an arrangement clear and provide an indication of cost. I also like the idea of a cost for advice – payable whatever the outcome – and, if the transfer goes ahead, a cost for implementation.
