James ConeyOct 14 2020

Defend against sophisticated con tricks

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What would you do if a long-standing client walked through the door and demanded to cash in every single one of their investments right there and then?

This is exactly what happened to one adviser at Dennehy Weller. The client demanded that he wanted to take back every penny of the £800,000 the adviser had so diligently invested.

The adviser’s final bargaining chip was that cashing in every investment would leave a whopping capital gains tax bill

I have only heard this story from the client’s side, but as far as his tale goes, the adviser was initially horrified, tried to rationally explain why this was not a good idea, and then begged him not to do anything rash. 

The adviser demanded an explanation, but all the client would say was that it was his money, he was entitled to it, and needed it back. The adviser’s final bargaining chip was that cashing in every investment would leave a whopping capital gains tax bill – but even that did not seem to hold much water.

The client stormed out demanding his money back.

So, what had prompted such an uncharacteristically hot-headed response from someone who had spent their whole life being prudent? Fraud.

The client had been the victim of scammers, who had managed to convince him that they were first representing his bank and then the Financial Conduct Authority.

So clever and devious was the impersonation that the victim had been lured in to thinking that his financial adviser was part of a criminal gang that was going to take his life savings.

So effective was the deception, that he really did think that his loyal and trusted adviser was now a criminal mastermind.

I tweeted about this story and one adviser got back to me and said he was concerned, not by the actions of the client, but that any adviser would have such a bad relationship with a customer that they could ever believe that their adviser was crooked.

It is a side of the story I had not considered. Great advice is, of course, built on great relationships.

You cannot properly understand the expectations and aspirations of someone without fully grasping their personal life. It is the kind of thing that no factfind can ever possibly highlight.

I see the argument. But what it fails to recognise is the sheer complexity and deceptiveness of scams these days; they are sophisticated mind tricks.

A great relationship with a client is a perfect way to combat this, but it is not the perfect defence.

What this case does highlight is how advisers now not only have a big role to play in keeping people safe from fraud, but also they could soon be on the frontline themselves.

They are, after all, the guardians of hundreds of thousands of pounds.

Scammers have already targeted estate agents and lawyers, and the banks’ own systems are slowly getting up to speed.

Scammers have successfully undermined their own customers’ confidence in them all. Advisers could well be next and need to be on their toes. Do not be complacent and think this could not happen to you.

In this case, the tale of the client did end well, but no thanks to the police, who fobbed off the man’s queries when he went to a branch.

No, it was Barclays Bank that stopped the fraud. And the adviser was able to act quickly to stop the investments being cashed.

CDC considerations

Regular readers will know my deep reservations about collective defined contributions schemes, and in particular my fear that postmen who are in the nation’s trial scheme, do not realise what they have signed up to.

Now the actuaries who are part of the Royal Mail scheme, namely Willis Towers Watson, have issued a load of guff (sorry, press release) that uses their own research to suggest that CDC will be 70 per cent better than a defined contribution scheme and 40 per cent better than a defined benefit scheme.

Some of the difference was down to different investment strategies and because in the DC pot it was considered that savers took out an annuity.

The fact that the comparison starts with the idea ordinary savers take out annuities is obviously a major stumbling block from the start. What most want these days is flexibility.

This aside, the primary selling point from advocates of CDC is that these schemes give stability.

That overlooks one crucial factor though, and places a lot of faith in the ability of actuaries, but in both an annuitised DC pot and DB scheme you will never get a cut in your retirement income, with CDC you might.

That is a pretty important thing for a pensioner.

Leave the housing market alone

The longer this housing market rally goes on, the more the disparity between the haves and have-not grows. I feel sorry for first-time buyers, but the government’s suggestion that it may underwrite 95 per cent LTV loans is madness.

Every intervention in the housing market just adds to the rise in prices. Enough fiddling.

James Coney is money editor of The Times and The Sunday Times