Your IndustryNov 26 2015

FCA and Fos approach to insistent clients

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The three broad steps the FCA says firms should take are:

1) Firms must provide advice that is suitable for the individual client, and this advice must be clear.

2) It should be made clear to the client that their actions go against the advice being given.

3) It should be made clear to the client what the risks of the alternative course of action are.

Importantly, Linda Todd, head of operations at Bankhall, says the FCA has made it clear that they expect it to be uncommon for clients who have sought advice to reject that advice, and proceed on a different basis.

Therefore, Ms Todd says the message is clear that ‘insistent client’ transactions should be the exception, rather than the norm.

In other words, she says the FCA clearly feels if firms follow the above steps sufficiently then the expectation is that the majority of clients would be inclined to follow the recommendations being made.

Ms Todd says: “The FCA has also already highlighted some of their key concerns from cases they have seen, principally that in a number of previous cases the adviser’s recommendation is not clear and risks have not been adequately explained.

“Additionally, cases have been incorrectly processed as ‘insistent client’ cases where this does not reflect the reality (for example, where the advice is simply a reflection of what the client has requested they would like to do).”

Keith Richards, chief executive of the Personal Finance Society, says that it is important to be absolutely clear that the FCA are neither saying that facilitating an insistent client transaction is wrong or right.

He says the FCA is simply saying that if an adviser chooses to facilitate an insistent client instruction then they should follow the three stage process.

Mr Richards says the issue remains that ‘insistent client’ does not form part of the official Conduct of Business rule book but always acting in the ‘best interests’ of the client is.

At the time this guide was produced, Mr Richards says the Personal Finance Society was seeking confirmation from both the FCA and Treasury about whether advisers will be in breach of COB rules by transacting an activity against the clients best interests.

He says: “We are also seeking a variation of process to better protect consumers and the profession under such circumstances and the provide certainty of future treatment when the outcome of a poor decision becomes more evident.

“We don’t want to give the ‘ambulance chasers’ a new stream of revenue.

“The FCA Pension Freedoms Data Collection Report in September 2015 showed that 91 per cent of small adviser firms wouldn’t deal with pension transfers for insistent clients as a general principal, although just over 50 per cent stated they would consider the circumstances.

“The PFS’s own member survey has shown that 81 per cent of members will not transact Pension Freedoms ‘insistent clients’ under any circumstance with the balance cautious.”

Also worth bearing in mind, according to Mr Richards, is the FCA has taken action against a number of advice firms who used a documented ‘insistent client’ process following their enhanced transfer value (ETV) thematic review.

Ombudsman approach to insistent clients

The ombudsman has previously commented provided advisers follow the FCA’s ‘three steps’ guidance they should not be concerned.

Recent Financial Ombudsman Service adjudications are also pointed towards to demonstrate that where the guidance has been followed, they have rejected illegitimate complaints.

However, Bankhall’s Ms Todd says complaint rejection will always be down to the individual circumstances of the case, and the quality of documentation.

Ms Todd says there are examples of Fos adjudications where complaints have been upheld on the basis that advisers should have followed an insistent client approach but have not done so.

For example, she says situations where the advice was not made sufficiently clear or ‘client-led’ (ultimately resulting in an unsuitable recommendation) and the firm should have either declined to arrange the transaction or have proceeded on an insistent client basis.

Ms Todd says: “Firms should have a process in place for dealing with insistent clients so they can demonstrate to Fos how they deal with such cases, and to ensure they have a consistent approach.”

In 2013 and 2014, the PFS’ Mr Richards says statistics show the Financial Ombudsman Service upheld 66 per cent and 77 per cent respectively of complaints against advisers where an ‘insistent client’ process was used and a declaration obtained.

Mr Richards says it is worth remembering that the ombudsman is of course dealing with legacy cases and from a period where commission may have had a role to play in the adviser’s decision to facilitate – a potential conflict of interest on its own.

It is unreasonable to ask the Fos how they would treat an insistent client complaint stemming from pension freedoms, Mr Richards says, as the fact is consumers have the right to claim against the adviser at any point in the future.

But Mr Richards says advisers should be aware that both the FCA and Fos view of ‘insistent client’ pre-pension freedoms was not supportive and indeed they still have a major thematic review underway against firms who used the process for enhanced transfer values (ETVs).

He says: “The FCA were forcing firms to offer redress where an ‘insistent client’ process was used even though no clients had complained.

“This review has gone very quiet since the obvious conflict with what the FCA have said in support of government pension reforms and what their supervisory team had been doing behind the scenes.”

Mike O’Brien, managing director of Tenet Connect and Tenet Select, says when it comes to Fos the genuine concern among the advisory community is that claims will manifest themselves some years down the line when the customer has exhausted their pension savings against the advice of the adviser.

Only then will we be able to tell what their approach is in practice, Mr O’Brien says.

He says this is the main reason why the debates about sensible safe harbours and the absence of a longstop in financial services are such hot topics.