Advising Mister insister

Both regulators and professional bodies such as the Personal Finance Society have waded in, as have such bodies as Fos. A number of questions must be asked, and we must define what constitutes an ‘insistent client’.

Despite the views of the experts there is no real consensus here, but the nearest thing to a definition is that an insistent client is one who, more or less, demands that his adviser follow a certain course of financial action, even if it is contrary to the advice given.

This means that the client is, in principle, going against the advice of his adviser. Ultimately this is the client’s prerogative, just as lawyers cannot insist their clients plead guilty or not guilty. The real question is what advisers do in these circumstances to protect themselves in case it all goes horribly wrong.

I recall talking to one adviser a few years back who was advising a wealthy client on how to invest the proceeds from a business sale. Many millions were to be invested. The fee-based adviser went away and carefully built a portfolio of investments and a plan, taking many weeks to do this to ensure he met the client’s brief.

He duly presented the recommendations to the client. Some weeks later he rang the client, who said he had decided to do the complete opposite of the advice and put all his windfall into a relatively high-risk property scheme suggested by a business acquaintance. To be fair he knew plenty about the property market, but the original adviser was aghast. Fortunately the client appreciated his hard work and paid the fee regardless of the fact that he ignored the advice given.

This is not a complete definition of an insistent client but the story reminded me that sometimes advisers do face difficulty in persuading some clients of the virtues of the right course of action. Clients may always want to take more or less risky courses than suits their needs or pockets.

That is their choice. Certainly in the case of some very strong-willed, self-made individuals it may be very difficult to persuade them from following a particular course of action. In these cases it may well be perfectly all right for a adviser to produce a detailed financial plan which the client appreciates, but then chooses to act on only parts of the advice or do something different.

I am sure most advisers are familiar with the client who knows better than they do

The FCA’s technical specialist Rory Percival helpfully recently tried to come up with some guidance on insistent clients. He came up with a three-step process: Initially, advisers should give concise advice and ensure clients understood it; secondly, advisers should make it clear the risks a client would face going down a different route to one recommended; and lastly, the adviser should make it clear that a client was choosing to follow a route that was not recommended by an adviser.

So why does all this matter? Have there not always been insistent clients? Of course there have, and I am sure most advisers are familiar with the client who knows better than they do. Advisers can only advise, not force, and as long as they put forward their final recommendations clearly and concisely the clients can do as they please.

This is all well and good, but the new pension freedoms, which I have voiced concerns about before, have thrown up all sorts of issues in this area.

Just one of them concerns those with DB pension pots of £30,000-plus who want to transfer to a drawdown plan or simply cash in their pension. New regulations suggest, quite rightly, that anyone planning to do this should get financial advice, but as FTAdviser.com reported recently it appears that some advisers are being asked to sign a document saying that advice has been given when none has been provided just to allow a transfer to take place.

It is not too fanciful to suggest that some clients strapped for cash would seek to get their hands on the money, which is after all theirs, as soon as possible, and will ignore any advice despite the powers that be ironically ‘insisting’ that they should take advice.

Here the Treasury has a difficult conundrum to deal with: Should people be allowed to do something inherently stupid with their pension, regardless of the consequences? At the moment the answer to this is ‘yes’, but it may well be the wrong answer.

While clients, insistent or otherwise, have won the right to access their pension as and when they wish within the guidelines they must fully understand all the consequences of their decisions. Pension transfers are not lottery wins, and allowing clients to insist on making a blunder is nowhere near sensible consumer protection.

Kevin O’Donnell is a financial writer and journalist