One of the main financial advisers’ trade associations has called for advisers to steer clear of ‘insistent’ clients seeking to utilise the new pension freedoms against the advice of their adviser.
Keith Richards, chief executive of the Personal Finance Society, has advised his members not to process insistent client cases. He has called on the Government to guarantee that advisers would not be held liable for any future complaints from insistent pension clients, and that such clients would not be able to access the Financial Services Compensation Scheme; and only if this guarantee is received would he change his advice. Mr Richards said:
“If the government expect advisers to facilitate transfers, irrespective of their advice to the contrary, there must be a change of process to further protect the client and guarantee that advisers will not be held liable if a poor outcome subsequently materialises.
“Until then, our advice to members is clear and unambiguous: do not facilitate activities which go against your professional advice and the best interests of the client.”
The Society has written to the Government and to the regulator, the Financial Conduct Authority (FCA), regarding its fears of a new mis-selling scandal surrounding the pension freedoms. It has cited examples from other countries that have introduced similar freedoms, such as the USA and Australia, of the possible pitfalls of such a system.
The FCA does not have an official definition of an insistent client, but it is generally held to be a client who wishes to disregard their adviser’s recommendation and pursue a different course. Advisers are already reporting that clients are contacting them seeking to withdraw more than the 25% tax free lump sum from their pension fund, regardless of the consequences this might have in terms of eroding the pension fund and/or pushing them into a higher income tax band.
One question that inevitably has to be posed is why would a client pay for financial advice and then disregard it? However, many existing clients of financial advisers will inevitably look to their adviser to process the transaction should they wish to take advantage of the new freedoms.
Mr Richards added:
“Problems will emerge where the client is not really interested in the advice and just wants the adviser to facilitate a transfer.”
The FCA has suggested that maintaining clear and comprehensive records of insistent client transactions is key when dealing with this issue. A spokesperson for the FCA said:
“Where an individual insists on going ahead with the transfer, even when the advice is against it, the adviser should set out their advice clearly in writing and keep it, along with a clear record that the customer has insisted on proceeding.”
The Financial Ombudsman Service (FOS), the independent complaints adjudicator, has highlighted that in the past it has found financial advisers to be liable for non-advised sales in only a few exceptional cases.
However, a guidance note to its members issued by compliance consultancy SimplyBiz refers to being “concerned about mixed messages from FOS and the FCA” on this subject. The company stopped short of calling on its members not to process insistent client cases, but the company’s joint managing director Matt Timmins commented:
“Regardless of the information contained in the suitability letter and a client’s signed statement, the FOS could uphold a claim if it felt the advice wasn’t in the best interests of the client. Everyone in the industry knows that pensions freedom is the next potential misspelling scandal and we need clear and consistent guidance across the FCA and FOS to protect against this happening and not just punish advisers when it does.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article