Defined Benefit  

Insistent clients and DB transfers

This article is part of
Guide to handling insistent clients

Insistent clients and DB transfers

When it comes to DB pension transfers, insistent clients pose a potential danger to both themselves and their advisers.

If the client goes ahead with their own course of action, with the firm having executed the client’s request, despite advice to the contrary, the outcome may be far from satisfactory.

This can lead to the client raising a claim against the adviser.

As financial adviser Nick McBreen, of Worldwide Financial Planning, observes: “Given today’s blame culture, this could come back and bite you.”

He adds: “It introduces an additional level of risk, so avoid the risk.”  

There are many reasons why the problems can arise in the first place, such as lack of understanding on the insistent client’s part, before they consult a financial adviser.

Mr McBreen points out: “They should speak to their HR department first and ask what resources are available for them to understand what’s involved, but there seems to be little information available.” 

He also believes that insistent clients may have misconceptions, which can lead to problems.

“The average person looking at going ahead with a DB transfer is venturing into dangerous territory. Do they really understand the risk of forsaking a DB scheme for something that looks sexier?” he asks.

“Perhaps it’s a matter of fear of missing out – which they could perhaps better apply to other areas of their investments.”

However, if the worst comes to the worst, and an insistent client does decide to make a claim against their financial adviser, regardless of information provided, the adviser may not be able to rely on professional indemnity insurance to protect them.

The recent changes to compensation levels awarded by the Financial Ombudsman Service have had a knock-on effect on advisers’ ability to safeguard themselves.

In a tight corner

The raising of Fos compensation limits has, unsurprisingly, given insurers pause for thought, resulting in exclusions and restrictions on PI policies.

Mr McBreen says: “Someone always has to pick up the tab – the more people who ‘jump on’ claims, the more it will have a knock-on effect on others.”

Some advisers have already felt the impact, including Scott Gallacher, director and chartered financial planner at Rowley Turton, who reports: “We had our PI review recently and advising insistent clients is now a specific exclusion.”

Reflecting on the increased compensation levels offered by Fos, Mr Gallacher says: “Fos has shifted its stance over time from being an independent reviewer, to being a consumer champion.”

While other advisers have not seen a tangible change so far, they anticipate turbulence ahead, as Paula Steele, managing partner at John Lamb Financial Planning, observes: “When the Fos limit went up on April 1, our insurers said they wouldn’t impose a mid-term premium hike, but I’m pretty sure premiums will rise.”