FCA rules could lead to client poaching

FCA rules could lead to client poaching

The Financial Conduct Authority's (FCA) proposed investment pathways could see advised clients be classified as non-advised and open up the gates for poaching, experts have warned.

As part of its Retirement Outcomes Review, the FCA proposed pension providers offered their non-advised customers a choice of investment pathways to meet their retirement objectives.

This was after it found many consumers were solely focused on taking tax-free cash from their pensions and were "insufficiently engaged" with deciding how to invest funds that moved into drawdown.

But the consultation paper published in January stated providers would need to treat consumers as non-advised if they make an investment decision more than 12 months after the transaction they had been advised on.

This will also be the case, within the 12-month period, if the client doesn’t confirm that their personal or financial circumstances have remained unchanged since receiving advice.

Steven Cameron, pensions director at Aegon, told FTAdviser the new rules could be a cause for concern for financial advisers.

He said: "Advisers - quite rightly - want to protect the relationship they have with clients and don't want providers to be stepping in as the client was non-advised."

He noted the FCA was seeking to protect non-advised customers but he warned "the way in which they are planning to do so might err too far on the side of 'if in doubt, treat as non-advised'".

Aegon itself had been accused of poaching clients via an automatic upgrade process in 2017, when it wrote to clients to inform them their account was going to be upgraded if their adviser had not contacted them within a 12-month period.

But the firm denied the allegations, saying the upgrade process only occurred when the firm's records indicated a client was no longer in contact with their adviser.

Then in May 2018 Aegon called on the FCA to create an anti-poaching device. Specifically it asked the regulator to introduce a way to make sure a customer is truly an 'orphaned' client when approached directly by providers.

Advisers have voiced similar concerns about the FCA rules.

Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, said: "Providers may try to bypass the adviser and slot the clients into one of their ‘investment pathways’ instead. 

"A client may feel that it is quicker to just do it non-advised via an ‘investment pathway’, rather than go through their IFA, without fully understanding the investment strategy and the impact it might have on their overall financial plans - as the investment solution is not personalised for their circumstances or, worse, may not suit them at all."

Paul Stocks, financial services director at Dobson and Hodge, agreed the rules seemed to pose a risk that clients who wanted to remain with their advisers ended up no longer being deemed to be advised.

He said: "In such cases, I would anticipate there would be a need for the adviser to complete additional paperwork to reinstate the relationship - causing cost and inconvenient for all parties.