Your IndustryNov 26 2015

Approach to take with insistent clients

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He says advisers should make sure that the prospective client understands their fee structure and the cost to the point of recommendation – always separate the cost of advice from facilitation to avoid a conflict of interest.

Mr Richards says: “You have the right and expectation to be an ‘insistent adviser’ doing the right thing in the best interests of the public, even when it’s not what they think they want, is commendable, expected and will result in a stronger more sustainable business model long term.”

Linda Todd, head of operations at Bankhall, says she would advise that firms carry out transactions for insistent client cases only in exceptional circumstances.

She says Bankhall also recommends that firms receiving significant volumes of insistent client requests should revisit the three steps approach and ask themselves whether they are documenting the reasons for their advice and the risks/implications of proceeding down an alternative route.

As per FCA comments, she says Bankhall would also agree that firms should avoid the use of signed ‘disclaimers’ from clients as these carry little weight with the regulator and the ombudsman.

Importantly, Ms Todd says Bankhall would strongly encourage firms, after making their advice clear to clients, not to invite them to respond on an ‘insistent basis’.

She says: “This request should come at the initiative of the client and firms should ensure clients provide their own written instructions confirming why they wish to reject the advice and to detail the alternative course of action the client wishes to take.”

Chris Hannant, director general of the Association of Professional Financial Advisers, says each firm needs to work out their own approach to handling insistent clients.

He says firms should consider where they would draw the line between a course of action that is not ideal compared to one that is potentially harmful for a client.

Mike O’Brien, managing director of Tenet Connect and Tenet Select, says his company’s approach to insistent clients was very much in line with FCA guidance but is somewhat more detailed.

A condensed version of Tenet’s guidance is:

The adviser is expected to conduct and document an initial fact find, needs analysis, research and make suitable personal recommendations.

Where the client rejects this approach, Mr O’Brien says his advisers should explore their reasons for doing so.

He says: “Advisers are expected to check the customer’s understanding of the recommendation – it may be suitable but the client has not understood why, or the needs or circumstances of the customer may have changed.”

Where the original advice is not being proceeded with and the client is directing a variation to some or all of the recommendation(s) and the variations remain suitable, Mr O’Brien says the revised suitability report will:

1) Include clear reasons for the change to the original advice.

2) Identify and clearly point out the impact of any disadvantages arising from the alternate course of action.

3) Include clear and relevant risk warnings.

4) Restate and emphasise the original recommendation.

Where the client is proceeding on an insistent client basis, Mr O’Brien says they must confirm their instructions to proceed in writing and using their own words.

As a network, Mr O’Brien says Tenet has decided to pre-assess all insistent client cases prior to the execution of the business.

He says the volume of such cases is very low.

On whether to try to convert an insistent client into one that agrees you’re your recommendation, the PFS’ Mr Richards says many advisers have introduced reason and balance but only take a client on if they accept your terms of engagement from the outset.

He says: “In balance we are seeing positive outcomes from pension freedoms and putting regulated advice in the way of complexity and risk has worked well for consumers who ultimately valued the advice they have received and are undoubtedly in a better position as a result.

“Being clear about what professional advice is from the outset is key and has meant that some consumers have avoided making poor financial decision.

“The need and demand for professional advice was steadily growing pre-Budget announcement, which is even more reason why the conflicts of mandating it must be addressed.

The inclusion of regulated advice is an important risk mitigation solution of the pension freedom reforms.

However the requirement for regulated advice equally contradicts the public perception of ‘total freedom’ and has created a growing number of insistent clients.

“Forcing the public to take and pay for professional advice if they don’t want it is impacting on the their view of advisers and the pensions industry more broadly and leading to access challenges.”

Mr Richards says the PFS warned HM Treasury and the FCA that this could be the outcome of pension freedoms back in March 2015.

He says the PFS are consulting further and until they see a change of process and certainty of future treatment, their guidance to members remains unchanged – it is the adviser’s right to decide what is appropriate based on the individual needs and circumstances of their clients.

Tenet’s Mr O’Brien says in his company’s experience, once the consequences of taking an alternative course of action are fully understood by the customer (often to do with tax consequences), they are no longer tempted to become an insistent client.

Ultimately Apfa’s Mr Hannant says you should try to convert an insistent client into one that agrees with your recommendation.

He says: “You are giving advice. You should stand by that advice. They may not wish to accept your advice, but it still remains the course of action recommended by you.

“Obviously, you don’t harangue the client endlessly but when acting on their behalf you need to remind them that this was not your recommended course of action and highlight the risks.”