What the regulator's view on insistent clients means for you

Sankar Mahalingham, head of defined benefit growth for Xafinity, believes the regulator has a “certain level of concern” when it comes to insistent clients.

According to Ryan Markham, head of member options for Hymans Robertson, this is certainly the case. He comments: “The Financial Conduct Authority (FCA) is taking an increased interest in insistent clients, primarily due to potential member detriment in this area. 

“Financial advice firms have also been vocal in calling for more clarity and guidance on how to treat insistent clients, so their advice principles and professional indemnity can reflect this.”

He said the whole industry would welcome more guidance and clarity on this area when the regulator issues the outcomes of its consultation. 

For Claire Trott, head of pensions strategy for Technical Connection, the regulator has been clear about how it believes insistent clients should be dealt with, and welcomes the latest Financial Conduct Authority consultation paper - Financial Advice Market Review: Implementation part II and insistent clients.

She highlights the three points made by the FCA: 

•     Appropriate advice needs to be given following all the rules surrounding that type of advice.
•    The adviser needs to make it clear to the client what the risks are by following the alternative course of action.
•    The adviser needs to make it incredibly clear the actions are against their advice.

Alastair Black, head of financial planning propositions for Standard Life, believes the consultation came “at the right time for advisers and their clients” in terms of setting in stone good practices for the thorny area of pension transfers.

Mr Mahalingham says there had been some “gaps in the legislation and regulatory guidance, which have been acknowledged and being addressed as part of this current consultation”. 

According to Mr Black, the regulator’s consultation paper is a “good indication of travel” but there may be further legislation and guidance to watch out for.

Awaiting the outcome

The FCA’s consultation has only recently closed for comments and the outcomes are expected to be announced later this year – or early in 2018 depending on timings. 

But what is clear from advisers is that the guidelines need to be tight and robust, not just to protect consumers – one of the FCA’s pillars – but also to protect the providers and advisers from allegations of misinformation or mis-advice.

Mr Black says he believes the outcome of the consultation should result in “safer DB transfers” for clients.

Mr Markham also thinks this could benefit clients with advised defined contribution to defined contribution (DC to DC) transfers, although this is not as much of an issue as DB to DC.

Additional regulation will also benefit those who are advising on pension transfers. Mr Black comments: “Advisers have told us they need strong regulation and clear expectation setting to avoid confusion and to protect all involved in the transfer process, this includes insistent clients. 

“Increased clarity of regulation can only help advisers deal with all clients – insistent or otherwise.”

For Mr Mahalingham, the key is that everyone should be getting “high quality, relevant advice”.

What is expected

Many commentators believe the changes to come will not be a revolution but more of an evolution of the regulator’s already clear requirements on how to advise clients.

It should just be common sense, says John Vaughan, compliance manager for Mattioli Woods. “This includes advice being suitable for the individual client, and clarity as to what that advice is.”

Our position has been clear from the outset. Regulated advice is always expected to act in the client’s best interest and is part of the reason why it was mandated in the government’s pension freedoms legislation. Keith Richards

He says such an approach should work as it is “sensible”, namely: “Where the client wishes to do something against our recommendation, then the risks of the client’s chosen course of action must be made clear to them.

“We should make it clear to them their actions are against our advice and, generally speaking, would not transact with them.”

However, this common-sense approach has not been enough to allay individual advisers’ fears. Ms Trott explains: “Documenting all of this is incredibly important, because if it cannot be proved, then it did not happen, in the regulator’s eyes.

“Even if all the regulator’s guidelines are followed, it still may be the case the client won’t be able to transfer, or transfer to certain schemes, which may mean the client will not be able to achieve what they set out to do in the first place.”

Therefore, neither the adviser nor the client might get the very best outcome, despite the very best intentions of policy makers and implementers.

In which case, Keith Richards, chief executive of the Personal Finance Society, says the guidance from the PFS is “don’t transact any activity against your professional recommendation of suitability”.

Regardless of what the regulator says, Mr Richards states: “Our position has been clear from the outset. Regulated advice is always expected to act in the client’s best interest and is part of the reason why it was mandated in the government’s pension freedoms legislation.”

simoney.kyriakou@ft.com