The debate around contingent charging on defined benefit (DB) pension transfer advice is a sideshow. It serves only to distract us from blaming the advisers, regulators and policymakers who played their part in the problems that are now unfolding.
Like a murder mystery, the crime appeared in the first few scenes. Pension freedoms and choice triggered a huge movement of DB money, which became apparent in just the 12 months from Budget announcement to implementation in April 2015.
We all predicted problems with bad advice. Unlike a murder mystery, however, nobody had been harmed at that point. We watched the whole story unfold, strangely impotent to do anything about it.
The 12 months between the Budget announcement and implementation was sufficient time for policymakers to react. There were plenty of things they could have done then or since.
But perhaps the huge tax take from freedoms and choice gave them their own conflict of interest. There is little recognition this was a problem sparked by a piece of highly political policymaking.
I have no fixed view on contingent charging. I can see the pros and cons of a ban. What I am constantly disappointed about is the remarkable lack of detail provided by anyone on the subject, the sort of practical detail probably only an adviser could provide.
Much of the commentary comes from actuaries and pension providers, which have more conflicts of interest in this regard than most advisers will ever have.
There is a clear connection between poor advice and contingent charging. But if an adviser told me they waived all charges for DB transfer advice for a client they had been looking after for 15 years and had already made plenty of money from, I would struggle to tell them that was unethical and they should be charging an additional fee, as that would change the advice they gave.
If they said they charged £500 for a report (non-contingent) then 3% for ‘implementation’ and 1% ongoing, removing the fee would unlikely remove their bias towards a transfer.
Who is going to decide what a reasonable and meaningful contingent charge would be? Does it not depend on too many factors? Will it just be a minimum charge?
The Financial Conduct Authority has acknowledged this, but perhaps failed to come up with an alternative, which hindsight might unfairly judge as indecision.
The constant debate is a way of avoiding action. Avoiding action is easy when nobody is to blame, other than ethereal concepts such as contingent charging.
It is an unpopular view, but this industry (and I use that term knowingly) has more bad apples than it is prepared to admit. And that goes from the top down.
It is not just a small number of bad advisers offering poor advice that have created the DB problem. They have been encouraged along the way by some big names in big companies.
My suspicion is, if every client had been charged a contingent fee, most would have simply paid more money for the bad advice they received.
MPs have reopened the debate on contingent charging by repeating the obvious truism ‘advisers could be incentivised to give bad advice, such as recommend a DB transfer where it was inappropriate to do so, because they are only paid if the client goes ahead with the transfer’.
Why are MPs so keen to reopen this case? By holding the pen, via the work and pensions committee, I suspect they are hoping to write the ending to this tale with themselves as the heroes rather than the villains.
The story never ends without someone being the villain. A faceless concept such as contingent charging is an unsatisfactory one.
Phil Young is managing partner of Zero