The Financial Conduct Authority (FCA) has now issued further guidance to advisory firms on how to handle insistent clients – clients who receive advice but choose to take a different course of action. (Note these are not the same as execution only cases, which are instances when the client does not wish to receive any advice at all). Some firms are reporting a significant increase in numbers of insistent clients since the introduction of the pension freedoms earlier this year. Many clients simply want to make a significant cash withdrawal from their pension fund, even if it would severely reduce their future pension income and/or move them into a higher rate income tax bracket. So the choice facing an adviser in these circumstances is either to process the client’s request, or to refuse to do business with them.
The latest advice came from the FCA’s technical specialist Rory Percival when he addressed a July 2015 seminar of trade association the Association of Professional Financial Advisers. Mr Percival recommended that firms obtain a written statement from insistent clients, which explains, in their own words, why they chose to disregard their adviser’s recommendation.
Mr Percival said: “You can’t argue with something in [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][the client’s] own words”. He also cautioned against the use of standard disclaimer forms designed by the firm by saying that such forms “can easily just become just another bit of paper to be signed without being properly read.”
The regulator has previously recommended that advisers follow these steps when dealing with insistent clients:
1. Give a clear and concise recommendation, ensuring the client understands what is being recommended
2. If the client indicates that they wish to take an alternative course of action, clearly explain that this is against the firm’s advice, and make them aware of the risks involved with the route they wish to take
3. Clearly document on the client file the fact that the client has chosen to go against the professional advice they received
Firms should note that suitability reports are required for insistent client cases. The same level of information needs to be provided to the client as would be the case had they taken the same course of action after following the adviser’s recommendation.
If the case involves a pension transfer, the firm should have internal procedures to ensure the file is checked by a suitably qualified person.
At the same seminar, Harriet Myles, an outreach officer from the Financial Ombudsman Service (FOS), said that her organisation had not so far noticed an increase in complaints from insistent clients. It was worries over the stance the FOS would take that led another advisers’ trade association, the Personal Finance Society, to recommend that its members did not process insistent client business.
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.