Contingent charging was banned by the FCA in October 2020 after several years of concern that it was causing people to transfer their DB pension unnecessarily.

Advisers using contingent charging were only paid when a DB transfer went ahead, seen as an incentive by critics to recommend a transfer.

Pensions consultancy LCP submitted an FOI request to the FCA to find out about the impact of contingent charging and whether it had caused more people to transfer compared to non-contingent charging.

LCP says the figures released by the FCA provide strong evidence of bias, with firms using contingent charging far more likely to recommend a DB transfer.

LCP says two in three DB transfer scheme members who took contingent charging-based advice ended up transferring compared to less than one in three where non-contingent advice was taken.

LCP says the FCA held off imposing a ban for several years despite DWP Select Committee chair Frank Field first calling for a ban in 2018. A DWP Select Committee report in 2018 warned that contingent charging was a “key driver” of poor advice.

In its response to the FOI request, the regulator provided average 'conversion rates' (the number of people transferring after getting advice) for DB transfer contingent charging. 

These were:

• Firms only using a contingent charging structure: 68.25%
• Firms only using a non-contingent charging structure: 27.97%

The FCA was unable to provide data for hybrid advice (part contingent, part fixed fee).

Approximately half of the 1,349 firms surveyed by the FCA used contingent charging. 

Jonathan Camfield, a partner at LCP said: “For the first time, we can see the dramatic difference between advisers who charged on a contingent basis and those who did not.  More than two in three members who were being charged on a contingent basis ended up transferring compared with less than one in three where the adviser was charging on a non-contingent basis.  

“This is the strongest evidence to date of the potential for bias when an adviser gets paid more if a transfer goes ahead.  Yet the FCA allowed contingent charging to continue long after concerns were raised by the Select Committee and others.  It is vitally important that the interests of the member and the adviser are in alignment and it would appear that on too many occasions in the past this was not the case.”