CompaniesApr 14 2015

PFS demands government ‘guarantee’ over advice claims

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PFS demands government ‘guarantee’ over advice claims

The Personal Finance Society has called on the next government to “guarantee” advisers helping clients to process which go against advice recommendations will not be liabale for future claims, in order to prevent more clients being forced to go it alone.

Chief executive Keith Richards has told all advisers not to process business from so-called ‘insistent’ clients and has said in a statement this morning (14 March) that this could only be lifted if advisers could be sure they would not face future claims.

He added HM Treasury must accept that refusing to facilitate an unsuitable insistent client transfer or annuity re-sale is an appropriate decision for an adviser to take given the potential for claims.

Advisers are in particular worried about future claims from the ombudsman, which does not stick rigidly to an assessment of whether advice was compliant but applies ‘common sense’ judgements. In the past it has found that ‘execution-only’ sales actually constituted advice.

“So 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.

“Insistent transactions against professional advice should clearly contain appropriate risk warnings from the adviser and we have proposed an additional independent warning from the scheme trustee, highlighting exclusion from any form of future redress against the adviser, trustees or the FSCS.

“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.”

Mr Richard said both consumers and advisers need greater protection to avoid short-term gain resulting in long-term pain for many who later regret the decision to cash-in, under the new pension freedoms, and look for someone to blame.

He said the government needs to take heed of similar situations in America and Australia, where such flexibility has resulted in retirees running out of both capital and income early into their retirement.

At the end of last month, the PFS warned that the government and the Financial Conduct Authority run the risk of creating a future mis-selling scandal that will bring future claims on advisers if they do not address the issue of ‘insistent clients’ acting against professional advice.

The PFS wrote to both the government and the FCA, stating that they must deal with this issue and should change the policy for those clients that ignore advice.

Mr Richards said: “Our government and regulators are sensibly seeking to mitigate the risk of poor outcomes by ensuring that people take impartial professional advice.

“But problems will emerge where the client is not really interested in the advice and just wants the adviser to facilitate a transfer.”

He warned that for the pensions freedoms concept to operate successfully “it must be accepted that refusing to facilitate an unsuitable insistent client transfer or annuity re-sale will in most instances be an appropriate decision for an adviser to take from a professional standards perspective”.

However, Mr Richards admitted this could leave consumers “frustrated and critical of the reforms”.

Last week, FTAdviser reported that an adviser had already turned away a freedom request from a client who was seeking to cash in a pension despite advice not to do so.

The client, described by the adviser as a previous “transactional customer”, had sent an email at shortly after 7am on Easter Monday, the first day of the new pension freedoms, stating he wanted to withdraw his £62,000 pension over the next two or three years.

The adviser directly cited PFS’s ‘just say no’ stance.

emma.hughes@ft.com