Your IndustryJul 11 2019

Taking care of your business

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Taking care of your business

It is vital that advisers seek to protect their business from insistent clients who may become disgruntled by their advice at a later stage, and make a claim. 

So, what can they do, to minimise risk?

Turning insistent clients away is a popular choice for avoiding potential pain later.

Paul Allan, a financial adviser at Wren Sterling, says: “The best tack to take is not to take the business from insistent clients in the first place. It presents a considerable risk.”

William Hunter, founder of Hunter Wealth Management in Edinburgh, agrees: “We don’t work with insistent clients at all. We don’t think it’s the right thing to do, so we don’t facilitate it.

“Why do something that you don’t think is right?”

They also need an explanation from the client as to why they are proposing to proceed, regardless.Robert Morris

Carl Lamb, managing director of Norwich-based Almary Green, another adviser who does not work with insistent clients, believes the industry has a serious problem on its hands.

He says: “We’re walking into a massive mis-selling scandal with DB pension transfers. It will make PPI look like a walk in the park.”

The knowledge

One way for advisers to avoid DB pension transfer problems generally is to further enhance their pensions knowledge, according to the Personal Finance Society.

Chief executive, Keith Richards, says: “We recommend financial advisers join the hundreds of professional advisers who have already signed up to the Pension Transfer Gold Standard.”

The Standard is a commitment to deliver on nine principles of good practice when giving pensions advice, which were produced by the Pensions Advice Taskforce.

It was created as a result of the pension transfer issues arising around the closure of the British Steel Pension Scheme in early 2018, and public statements of concern about the practices of some advisers.

The nine principles focus on:

  • helping clients understand when advice is appropriate;
  • ensuring the advice supports the client’s overall wellbeing, within the context of their objectives;
  • ensuring client understanding and acceptance of all charges;
  • ensuring the most appropriate and updated technical skills are applied;
  • transparent management of conflicts of interest;
  • helping clients understand the cost of transferring benefits;
  • avoiding unregulated investments and introducers;
  • and transparency in advice processes and outcomes.

The principles also advocate promoting the Consumer Guide to the Pension Transfer Gold Standard.

Resting your case

Robert Morris, a partner at RPC solicitors, also believes that in-depth knowledge is key for protecting advisers from insistent clients – as is client communication and clarity.

He explains: “The first thing to do is to look at the FCA’s handbook (COBS section 9.5a) where there is specific guidance for firms on how to deal with insistent clients.

“These are not rules, technically speaking, but clearly the FCA and Fos expect them to be followed. This is a good starting point.”

He adds: “It is also crucial for the firm to provide full and reasoned advice in a letter stating why they advise the client not to proceed with the DB transfer, to explain what the risks are if they do go ahead and to make it very clear why the firm believes this is not appropriate − even if they know the client will ignore it. The client has to understand the downsides.”

Mr Morris also points out the importance of the client’s involvement in demonstrating their understanding, or lack of it.

As he says: “The next crucial point is that they need to obtain from the client written acknowledgement that they understand that they are being advised not to go ahead and acknowledgement of the client’s understanding why.

“They also need an explanation from the client as to why they are proposing to proceed, regardless.”

Mr Morris also emphasises that the wording should not be dictated by the firm: “Fos would want to see an email or letter which is clearly from the client and to see that they have not been ‘spoon fed’ by the adviser.

“My understanding is that the ideal scenario is one where the firm says to the client, ‘we want you to write to us and tell us what your understanding of our discussion was’. This might flush out misunderstandings on the client’s part.”

He adds: “I have some sympathy with those who say the only way to protect themselves is not to carry out these transfers at all. I’ve seen cases where it’s been said the client didn’t understand, when in my opinion they did understand, and were genuine insistent clients.”

Summing up, Mr Morris says that proof is paramount when it comes to insistent clients and DB transfers: “You need lots of clear evidence, in the client’s own words and own hand, to say why they are proposing to go ahead.”

Insurance dilemmas

Enhanced knowledge, solid guidance and clear communications are not, however, always enough to protect advisers from insistent clients.

Professional indemnity insurance is a requirement too, but due to exclusions and limitations, following the Fos increase in compensation levels, this traditional source of protection is currently shrinking. 

Looking at the practicalities of what IFAs can do in the circumstances, Rhiannon Bates managing director of The Risk Factor, says: “It all comes down to the choice of taking the risk.

“Smaller firms probably just can’t afford to take the risk of advising insistent clients, so their protection is to let them walk away, while maintaining run-off cover for historic cases, and perhaps seeing if they can negotiate long-term agreements with their insurers to make future premiums more predictable.”

Fiona Nicolson is a freelance journalist