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  • Stuart Fowler

An argument for (part) contingent fees


The Work and Pensions Select Committee has called for written submissions to its enquiry into the merit of a ban on 'contingent charges' in the case of transfers from DB pension schemes to personal pensions. Our distinctive approach to fees generally has been driven by the minimisation of conflicts of interest and cross subsidies, yet we charge an element of contingent fees. How can that be? That is something we felt we needed to explain to the Committee. Here is the summary of our submission.

1.1 Fowler Drew is FCA-regulated, as both advisers (with transfer permission) and discretionary investment managers. Our core competence is goal-based portfolio management; our methods are quantitative; our USP is a solution for ‘drawdown’ (converting capital to income to support spending). DB transfers particularly benefit from these strengths but we have only been active in arranging transfers in recent years, when the maths of CETVs altered because of the combination of a) derisking by most DB schemes and b) negative real interest rates as a consequence of QE.

1.2. Opinion ranged against transfers is often not mathematically or economically informed and when it is, it tends to correlate with a bias to a paternalist tradition in financial services that is similarly ranged against personal freedom and responsibility. We are informed but we are also, as a firm, motivated to support freedom and responsibility and optimistic about its payoffs in a more engaged and composed society.

1.3. We believe the case for a ban, though intuitively compelling, is flawed in principle. But our arguments are also evidence-based. We do not think that detriment having this cause has been demonstrated and we think it is actually somewhat implausible, compared with so many other reasons for poor practice or potential bias. A ban will probably reduce transfer activity but this carries a cost.

1.4. There is a principles-based approach, one we apply with ease, which we believe validates a proportion being contingent on transfer and a function of exposure. Though this could command respect if set out in guidance, it is not easily prescribed in new rules before the event; nor is it easily testable after the event.

The full text of our submission is here.


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