Advice to do nothing can still cost a fortune
THE phrase “contingent charging” has emerged in relation to the way financial advisers are paid by their clients.
Basically it means that a fee is only paid if the client goes ahead with the advice proposed by the adviser – with any fee to be paid agreed up front before any work is done by the adviser.
Quite often these payments take the form of a percentage of the funds that the advice relates to.
Usually, these days, they will come as a result of an adviser recommending a switch from a defined benefit pension scheme, sometimes known as a final salary type arrangement, to a personal pension.
So if your pension fund is worth £100,000 and you agree with your adviser that they will be paid one per cent of the fund value, if you go ahead with the transfer they recommend, then £1000 can be immediately taken out of that fund on the move to a new pension.
The regulator is considering a ban on this type of payment and insisting that advisers charge for the advice that they give, rather than charging only when a transfer takes place.
So if you went to see an adviser to ask whether you should transfer the money in your employer’s pension, it shouldn’t matter whether there is £50,000 sitting in the pot or there’s £500,000.
You should be charged a fee for the analysis that the adviser carries out regardless of whether their advice is to transfer the money or not.
This is where it gets complicated since lots of consumers will rebel about having to pay out money when they are told to do nothing by their adviser.
And lots of advisers will argue that there is more work involved in a £500,000 transfer than in a £50,000 transfer and they should be able to charge more for the larger sum.
There is no easy answer but as long as consumers want advice on the best thing to do with their pension pots they will have to realise that they need to pay for that advice, even if it is to do nothing.
● Make sure you understand the way you are paying for advice before your advisor starts to do any work for you. ● You might be better with a shorter-term loan if you want to pay it off before you stop work.