OpinionSep 25 2015

FCA points to rules while advisers demand examples

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FCA points to rules while advisers demand examples
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Despite a three-page document on ‘insistent clients’, various speeches and Financial Ombudsman Service decisions, advisers still want more reassurance from the regulator on how potential complaints from these clients will be handled.

At the FTAdviser Retirement Freedoms Forum yesterday (24 September), there was a heated debate about insistent clients.

During question time, an adviser in the audience gave the following example and asked the Financial Conduct Authority’s technical specialist Rory Percival to let him know if the intermediary would be safe from any future censure or compensation claim.

“A client is in a defined benefit scheme. He has read about pension freedoms and gone and got a transfer value and comes to see me. I discuss the benefits of final salary, a guaranteed income for life, etc, etc, and he decides not to transfer and dies.

“He doesn’t have a partner, but he has a son, who then says ‘My dad came to see you. If he had transferred I would now be getting £100,000 tax-free.’ Where do I stand from a complaint from the son?”

At first, Mr Percival responded simply with: “If it was the right advice then you won’t have an issue with us or the ombudsman”.

The adviser failed to accept this as a good enough answer and came back with: “Since the son is not a client, would he have any right to complain to me?”

Mr Percival responded that it was quite a technical question. “If he does have the right to make a complaint then I don’t think he will get anywhere if you gave suitable advice.”

The adviser pushed further and said: “But if I had just explained the advantages of the final salary and the client said ‘I will just stick where I am’ then I haven’t given advice. I have just given facts.”

I can understand the FCA’s exasperation at continued questions about handling insistent clients

Mr Percival said that the rules do not work in terms of setting out options for clients and a client picking. “The rules say you have to give suitable advice. So, you have to work out what the client’s objectives are and give them advice that is suitable. If you have done that you won’t have an issue.”

The adviser was still not quite clear, stating: “I have explained the advantage of the final salary, I have explained the advantage of moving it to a transfer, the flexibility, etc, and he said he decided to stay in the final salary scheme.”

Mr Percival then said if that was all the adviser had done, they might have an issue. “You haven’t done what the rules say you need to do, which is give suitable advice.”

As the phrase ‘suitable advice’ came up once again, the adviser was clearly dissatisfied at this point, so I stepped in and tried to give my understanding of what the regulator meant.

From my perspective, the adviser should start with what was the client hoping for from his pension – to pass it on or achieve the maximum amount of guaranteed retirement income possible.

Mr Percival agreed with this and said: “You need to find out what the client’s objectives are and then you need to give your advice as to what you think is a suitable course of action in light of those objectives.”

The adviser came back with “So, if I set the options out and he said the most important thing is income in retirement then I am home?” to which Mr Percival said yes, but added a caveat that it was not appropriate for advisers to just present options, step back and say “you choose”.

I can understand both the FCA’s exasperation at continued questions about handling insistent clients, as well as the frustration of advisers worried about their liability.

The FCA has rules on this subject that it feels are clear.

What the audience at the forum wanted were real-life examples, not the phrase ‘suitable advice’.

However, there are some real-life examples available – just type in insistent clients on the Financial Ombudsman Service website’s decisions section.

You will get to see how Fos, based on FCA rules, has judged cases where insistent clients have complained and indeed FTAdviser has reported extensively on the handling of these complaints.

A decision we found showed that the Fos is backing advisers on ‘insistent clients’, as long as you follow the FCA’s unofficial guidelines to document that the client declined to follow the advice given.

Despite all this information being readily available, advisers’ questions at the forum suggest there is clearly the need for more reassurance and case studies.

What would it take for you to feel confident that you can advise insistent clients and talk about pension transfers with no future negative ramifications?

emma.hughes@ft.com