View from City Road: A price worth paying for pensions advice

Click to follow
The Independent Online
The pension transfer fiasco might never have assumed such scandalous proportions if fee- based financial advice had been the norm, rather than the present system of paying advisers with juicy commissions.

Somebody paid an hourly fee has no vested interest in persuading a client to change pension arrangements for the sake of it. The fee stays the same even if the sensible advice is to do nothing - as it should have been for thousands of the cases being reviewed by the Securities and Investments Board.

The theoretical benefits of fees have long been acknowledged in the insurance and pensions industry. But the issue is usually dismissed wearily as irrelevant to the real world, since customers on the whole are averse to paying cash up front and prefer commissions.

Yes, of course advice from someone paid a fixed fee is likely to be more impartial. But a fee has to be found from current income, which is not easy at the best of times - and is particularly hard after redundancy.

Commissions quickly run into thousands of pounds on relatively modest pension transfers but the payment is apparently painless. The money is a percentage of a fixed transfer value. The customer still pays, but through a lower fund value.

The commissions come, in effect, from money put tax-free into the fund. One way to make fee- based advice more attractive would be to change the rules so cash fees to an adviser could routinely be paid out of the pension fund. Good funds already pay for impartial advice for their members in special circumstances such as redundancy. This should be generally available.

With a modest limit - a small percentage of the fund every few years - someone who has built up a substantial transfer value could afford to pay a decent fee. Fees and commissions could then be compared in the same context, and fees would usually look cheap in comparison.

Neither payment would eat into today's cash. And sensible advice is more likely to be heeded if it is accompanied by an invoice.