A Financial Conduct Authority (FCA) technical specialist has suggested a three-point procedure that firms could adopt when dealing with ‘insistent clients’.
Insistent clients are generally held to be those who receive financial advice but then opt to go against what their adviser has recommended. Advisory firms are reporting an increase in these types of client since the recent introduction of the Government’s pension freedoms – now 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.
Addressing a conference at investment research provider Morningstar in May 2015, the FCA’s Rory Percival revealed that his organisation had dealt with a large number of queries regarding this issue in recent weeks. He suggested 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 the risks involved with the route they wish to take
3. Clearly document the fact that the client has chosen to go against the professional advice they received
Mr Percival commented: “We’re saying you can transact against your advice, but you have to make your advice very clear,” and went on to say: “If you take these three simple steps, I don’t see how you will have a problem.”
He cautioned against the use of disclaimer forms for insistent clients, on the grounds that the client might not understand the form.
Despite these re-assurances from the regulator, many advisers might still be wary about processing insistent client business as they are unsure as to how the Financial Ombudsman Service would view the matter should a complaint be made at a later stage.
Keith Richards, chief executive of the Personal Finance Society, has previously recommended that his members avoid processing any business from insistent clients, unless the Government can provide guarantees that advisers will not be held liable.
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 FCA regarding its fears of a new mis-selling scandal surrounding the pension freedoms.
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