RegulationAug 13 2015

Fos decision backs advisers on insistent clients

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Fos decision backs advisers on insistent clients

Evidence has emerged that proves the Financial Ombudsman Service is backing advisers on ‘insistent clients’, as long as they follow the Financial Conduct Authority’s unofficial guidelines to document that the client declined to follow the advice given.

FTAdviser trawled through Fos’ database of online decisions and found an example of it throwing out part of a complaint because the adviser had documented he had an insistent client.

The decision, published prior to the pension freedoms in February this year, concerned the advice that a complainant, known as Mr G, received from Lighthouse Advisory Services to transfer his personal pension benefits into new arrangements.

In May 2006 the value of Mr G’s deferred pension benefits were transferred to a new personal pension policy. However, according to the decision, the adviser recommended against the transfer, noting: “I understand you are insistent that you wish to transfer from the scheme.”

The adviser’s recommendation was: “In light of this [the critical yield], I confirm my view that the likelihood is that by transferring you will receive a lower level of income in retirement than you would if you remained in the scheme.

“Regardless of investment performance within the pension scheme, the benefits provided are guaranteed by the sponsoring company; this would not be the case with a money purchase arrangement to which you intend to transfer.”

There was no direct insistent consumer statement signed by Mr G.

The Fos decision said: “Mr G chose to disregard the adviser’s recommendation and proceed with the transfer and therefore it is my opinion that the transfer from Mr G’s former employer’s pension is not an issue that the Financial Ombudsman Service can now investigate.”

Mr G also complained that Lighthouse had ‘churned’ his pension policies, which were transferred again later in 2006, in August 2007 and April 2008.

The ombudsman did uphold this part of Mr G’s complaint, but excluded the first transfer, as the adviser had documented the client was insistent, however as there was no financial loss, a reward was not made.

Earlier this year, FCA technical specialist Rory Pervical outlined a three-step process to help advisers not get caught out by insistent clients. He said they should provide advice in a concise manner, emphasising the need to ensure the client’s understanding of the recommendations.

Secondly, advisers should make clear what the risks are if a client wishes to go down a different route to the one the adviser has recommended. Finally, if the client decides to go ahead, advisers must be clear that this was not their recommendation.

Everything should be well documented, the FCA added.

A Fos spokesman told FTAdviser that they understand why many advisers have been concerned about how to deal with ‘insistent clients’ in recent months. “As we’ve always said, when advisers do what they do best – providing an individual, tailored and well documented service – there’s no need to be worried.

“One of the reasons why we publish our ombudsman’s decisions is to provide some reassurance about the factors we consider when investigating a complaint. And wherever we can see that an adviser has followed the FCA’s guidance, our decisions show that we’ve agreed with them.”

There are also around 10 other decisions published by the Fos, which involved insistent clients, where the ombudsman told advisers that ‘warning’ clients who wanted to perservere down a different route than was advised was not good enough and in all these cases they should have documented the client was insistent.

In one decision, published in January 2015, Mr B complained he had been inappropriately advised to transfer the value of his accrued occupational pension scheme benefits to a personal pension by Sorensen Financial Services.

The Fos saw the transfer report sent to Mr B, which made it clear that the income was lower from the personal pension.

However, the Fos said this was not good enough and the transfer “should only have gone ahead if Mr B had signed an insistent customer declaration”, adding “I have not seen any such signed declaration”.

In another decision, published in February 2015, Mr W complained about the advice he received from Ellis Bates Financial Solutions to transfer the value of his preserved benefits from his former employer’s final salary pension scheme to a personal pension.

The business argued that the complaint was not about the suitability of the advice, but that the advisers had failed to dissuade Mr W from transferring.

According to the decision, Ellis Bates said Mr W had already decided to transfer his benefits away from the occupational scheme as he wanted to access a large ‘cash equivalent transfer value’.

The decision said: “If Mr W had insisted on transferring then he should have been treated as an insistent customer and this should have been clearly recorded on the file. There is no such evidence on the file.”

donia.o’loughlin@ft.com