Contingent Charging Ban
FCA introduce changes to how you pay for advice.
From 1st October 2020, the Financial Conduct Authority (FCA) are introducing sweeping changes that will affect how you pay for Defined Benefit (DB) pension transfer advice.
You will have to pay a full advice fee even if you don’t transfer your pension.
Right now, you can still get free advice and will only pay our fee if you decide to go ahead and transfer your DB pension.
Before October – No transfer, no fee
Currently we can provide you with full advice and will only make a charge if you go ahead with a Defined Benefit (DB) pension transfer.
We will supply you with a report, written in plain English, detailing our recommendation, whether that is to transfer your DB pension or not.
If our recommendation is to transfer your DB pension, we will include all our costs and charges within the report.
You decide if you go ahead – if you don’t transfer your pension, you don’t pay anything.
In other words, our fee is ‘contingent’ on the transfer going ahead.
After October – Full advice fees must be charged, whether you transfer or not
The Financial Conduct Authority (FCA) has banned the use of ‘contingent’ charging from 1st October.
This means that if you want full advice about whether you should transfer your DB pension or not, you must pay us our full fee, irrespective of whether you go ahead with a transfer or not.
You will still receive a report detailing our recommendation.
- If we advise you not to transfer your DB pension, you still must pay our full fee.
- If our advice is to transfer your pension but you decide not to go ahead, you still must pay our full fee.
Why have the FCA banned contingent charging and why we disagree?
The FCA believe that if we only get paid when you go ahead with a DB pension transfer, then we are only incentivised to recommend you transfer, and therefore are less likely to recommend you don’t transfer.
In other words, we will push you to do something you shouldn’t do so we can get paid.
We believe the FCA are wrong and this is why:
We put in very strict systems and controls to make sure our advisers give you the right advice, whether that is to transfer or not.
- No member of staff is rewarded financially to recommend a transfer.
- No targets are set for the number of transfers that go ahead.
- All our Pension Transfer Specialist advisers and support staff are paid a basic salary and only rewarded for the quality of their work.
- All advice is independently checked by our compliance department before a recommendation is finalised.
We think Grove’s experience in numbers speak for themselves and prove the fact we don’t push individuals to recommend transferring their pensions.
That’s why the vast majority of people that approach us for advice don’t go ahead with a transfer – because we didn’t advise them to.
15,700+ people came to us requesting pension transfer advice.
5,382+ people went ahead with a transfer.
Will there be other advice options?
Abridged Advice – From 1st October, we will be able to introduce Abridged Advice. This is a shortened form of advice, but we will be allowed to provide it free of charge.
The good news is, we will be allowed to tell you if transferring your Defined Benefit pension is a bad idea and that we do not recommend it. And we can still do this for free.
The bad news is that under the new rules, we are not permitted to tell you whether we think that a transfer is the right choice for you without charging our full fee.
To give you a confirmed answer we need to proceed to the full advice process, where we can carry out a full analysis, but whatever the outcome, you will have to pay our full fee.
So Abridged Advice, which we can still carry out for free, can only have one of two outcomes.
- We can advise you that transferring your Defined Benefit pension is a bad idea and not to do it.
- Or, we don’t know if transferring your DB pension is a good idea or not, and the only way you can find out is if you commit to receiving full advice, pay us our full fee, irrespective of whether you decide to go ahead with a transfer or not.
Obviously, you can choose not to proceed to full advice, in which case no fee is paid.
What if I don’t want to take your advice and I want to transfer anyway?
If you decide not to take our advice, in certain limited circumstances we will proceed with transferring your Defined Benefit pension if you insist.
We reserve the right to refuse to carry out your transfer.
Either way, you will be committed to paying our fee, even if the transfer doesn’t go ahead.
However, it is worth remembering that we expect in most cases, when it is obvious that transferring your Defined Benefit pension is not advisable, we will have been able to tell you this, for free, when using our Abridged Advice service.
What if I can’t afford to pay for advice?
There is an option for us to carve-out individuals in serious financial difficulty or serious ill-health.
We will be able to charge these people on a contingent basis. In other words, those eligible for carve-out only have to pay if the transfer goes ahead.
Ill Health: This is where an individual has a life-limiting medical condition, which would shorten their life expectation to below age 75, AND you are unable to afford to pay for your advice.
We would need evidence, probably in the form of a medical practitioner’s documentation about treatment or medication etc.
Serious financial difficulty: This is when someone is not able to afford to pay our fee. The type of situation where it would be met will be based on the Money and Pension Service (MaPS) definition of over-indebtedness, which has two parts:
- Keeping up with domestic bills and credit commitments is a heavy burden, and
- Payments for any credit commitments and/or domestic bills have been missed in any 3 of the last 6 months.
It may be that the only reason you haven’t missed any credit or domestic bills is because you have gone further into debt, possibly by increasing your overdraft or increased the debt on your credit card, if this is the case and you have the evidence to back this up, then you may also be eligible for carve-out.
Likewise, if the very nature of paying a fee up front would by its very nature, increase your indebtedness, this may mean you are eligible for carve-out.
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