An FE survey, taken from a sample of 200 advisers, found only 56 per cent are ‘very confident’ their clients understand what they have told them during meetings.
Responding to the report, entitled Evolution and Experimentation: The Financial Advice Market in 2016, advisers have said the “worryingly” low level of confidence in clients’ understanding represents a risk that significant number of complaints could be made to the Financial Ombudsman at a later date.
Last month, the Financial Conduct Authority contacted 700 advice firms after many were found to have fallen short of expectations over assessing the suitability of their client’s investment portfolios.
Mika-John Southworth, director at FE, said the findings highlight the challenges advisers face when trying to translate complex investment concepts to their clients, and suggested they underline the importance of clearly communicating with clients and assessing suitability.
Alex Reynolds, financial adviser with London-based Advies Private Clients, questioned if advisers should be putting financial planning in place for a client if the client does not fully understand the advice they have been given.
The intricate details may be too difficult for some clients to grasp, he said, but advisers need to ensure the basic concept of the advice is understood.
“If a client doesn’t understand something then there is a big risk they may complain at a later date, as we have seen this many times in the past.
“The bottom line is that we need to educate clients and not sell to them.”
“Clients don’t need to understand absolutely everything.” Matthew HarrisDan Brocklehurst, managing partner at Trusted Planning, said clients should not proceed with advice until they understand enough to make an informed decision.
The adviser should confirm clients understand through “careful questioning”, he said, adding he would be concerned about acting on his recommendations if a client was unable to fully understand the advice given.
“While we have had to spend longer with some clients to get to the point where we are comfortable with them going ahead, we have yet to have a client who hasn’t been able to get to a point of sufficient understanding.”
Matthew Harris, IFA and owner of Dalbeath Financial Planning, said it is unfair on clients if they do not understand what is being recommended to them and means the adviser has not done their job well, increasing the likelihood of Fos complaints in the future.
”Clients don’t need to understand absolutely everything,” he said, using investment markets as an example.
“But that is okay as long as they clearly understand the overall risks they are taking, and the likely level of return they may get.”
“However, if there is something like a property fund in the portfolio, which might have to suspend dealing in a recession, then they do need to understand that clearly.
“So there are shades of grey here, but a good adviser will ensure their client understands all the important aspects of what is being recommended.”
katherine.denham@ft.com
