DrawdownFeb 7 2019

FCA rules could lead to client poaching

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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.

"There are cases where, even when letters of authority clearly stipulate that they are to remain in force until such times as a client states otherwise, providers ignore that request – meaning that, each year, in some cases, after 6 months, we have to request a further authority from the client to do work on those arrangements on their behalf.

"There have been many times where well intended legislation had unintended consequences and we need to be careful this isn’t added to that list."

An FCA spokesperson said the regulator was open to hearing people's concerns about any effects the rules may have in practice.

They said: "We are consulting on our proposals and welcome feedback on the proposals in our consultation paper, including how they might operate in practice."

Mr Chan also questioned the practicalities of the new rules. If an advised client is switched to non-advised, will the provider "switch the whole portfolio to these ‘investment pathways’ or just the new top up sum?" he asked.

"In either case, it would interfere with the investment strategy the adviser had originally recommended and managing and might lead to a bad outcome for the client," he warned.

Mr Cameron concluded the rules may further increase the trend toward giving ongoing advice, and the need to demonstrate ongoing advice has been given.

He said: "Advisers may want to put in place provisions to make sure that their clients either receive regular advice or they do consult their adviser before making any changes to their investments.

"If it goes through as proposed, the new rules will add further encouragement to make sure they give ongoing advice to their clients."

maria.espadinha@ft.com