Contingent Charging Conundrum
The Pensions Select Committee have this morning (15th February) released various proposals for the FCA to consider, driven in part by the British Steel issues in recent months.
A big bee in their bonnet is contingent charging. This mornings discussions were focused around the use of contingent charging for defined benefit schemes, but should really be considered for all types of advice.
So, contingent charging. We think there should be a common sense approach to this (as with most things). It makes absolute sense to have a fixed fee to provide advice. Then IF that advice requires some action, to charge a separate fee for that action.
The two can then be bundled together. Or paid separately. Via cheque. Or out of a plan. It doesn’t really matter. But to provide unbiased advice, a fee to undertake research and come up with that advice, with no preconceptions on what it might be, is demonstrably in the clients based interests. And, probably in your best interests too. You’re getting paid no matter what the outcome, which might help offset some sneaky bias that is working away in your subconscious!
We would recommend you consider this approach for all types of advice. It’s how a clear, not product linked, financial plan has always worked. It makes absolute sense in a defined benefit scenario. And once you’re used to doing it, it will make just as much sense on a cheeky little ISA top up.
The committee have suggested an outright ban on contingent charging. It remains to be seen whether the FCA will take this suggestion any further. Either way, you should be aware of the discussions and what might be looming. Use this as an opportunity to review your client and fee agreements, and ensure you have the structure in place to separate out advice fees and implementation fees. We’ll keep you updated!