Regulation  

FCA says safe advice not always the right advice

FCA says safe advice not always the right advice

Advisers must not make recommendations out of fear because advice typically regarded as ‘safe’ will not be right for every client, Rory Percival has said.

Speaking at the Distribution Technology annual conference, the FCA’s technical specialist said he had encountered examples of advisers recommending that their clients did not transfer out of their defined benefit (DB) pension even when it would serve their goals.

Decisions were being made out of fear of the regulator, not based on what was best for the client, he said.

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Mr Percival said: “Don’t get scared into not giving the right advice because you’re concerned that the regulator might have views about something such as critical yield.

“You need to have the confidence to give the right advice to your clients.

“There is a preconception with advisers that you can only advise on doing the safe thing, but it is not, it is about advising on what meets the client’s objectives. Sometimes that might be advising to do something you might not do yourself.”

Mr Percival made the comments after being asked about insistent clients, who demanded to go ahead with a transaction – particularly DB transfers – despite being advised against it.

He gave an example of a recent file review he did where an adviser told their client not to transfer their NHS pension even though the client was very wealthy, the income they would have received from the pension would have been small and their main objective was to pass on as much as possible to their children.

Mr Percival also touched on the FCA’s thematic review on due diligence, which was published last month and found several “disappointing” practices.

He acknowledged the six-page report was light on detail.

But he said: “This thematic review is not the be all and end all of what we are saying on research and due diligence. It is the start of the conversation, not the end of it.”

He added the technical guidance on MiFID II included a section on the procedures firms should have in place for research, and the FCA would be returning to this issue when it consulted on the directive in the summer.

Adviser View

Richard Ross, director of Norfolk-based Chadwicks, said: “Advisers are being asked to walk an impossibly thin tightrope.

“I am confident that the majority of advisers will do their best for their clients, but in doing so they must be aware of commercial reality, especially against a background of retrospective reviews that apply revised criteria to the quality of advice.”