Pension FreedomJul 11 2019

The rise of the insistent client

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The rise of the insistent client

Insistent clients are nothing new, but the introduction of pension freedoms in 2015, which gave people more control over their pension savings, has led to some unintended consequences.

For instance, some clients have gone ahead with defined benefit (DB) pension transfers, despite their adviser’s advice to the contrary.

But as it is a complex subject, which clients may not fully understand, the results could be disastrous for their financial wellbeing.

Referring to the attraction of high transfer values for some clients, Zoe Dagless, a chartered financial planner at Addidi Wealth in London, says: “They see the big numbers, do some quick maths and think it will be okay.”

My way or the highway

But if an insistent client’s own decisions do not lead to the outcome they are looking for, some are blaming their adviser, and making claims. And some are winning.

To give just one example, earlier this year, Fairstone Financial Management was ordered to pay compensation to a client it had helped to access tax-free cash in their pension, against the firm’s advice.

Some really good transfer advice has been provided. It's all too easy to just focus on the bad practice.Jeannie Boyle

This could be just the tip of the iceberg, as insistent clients are not occasional occurrences and the number of people making their own decisions is considerable, creating a sizeable potential claims risk.

In June this year, the Financial Conduct Authority reported that nearly 10,000 customers who were advised against transferring out of their DB pension scheme still chose to do so.

The FCA’s survey, of more than 3,000 firms, also revealed that more than a quarter of those surveyed (26 per cent) were facilitating insistent clients.

In addition, it found that of the 234,951 scheme members who had received advice on transferring, more than 160,000 had been recommended to transfer out, and more than 70,000 had been recommended not to transfer.

Furthermore, it found that 174 advisers had accepted introductions from unauthorised introducers, leading to 4,066 transfer recommendations.

Insistent clients or otherwise, there is a lot of pension money at stake: the FCA’s survey discovered that the total value of DB pensions where transfer advice had been provided was £82.8bn, with an average of £352,303, and that 1,454 firms had recommended 75 per cent or more of their clients to transfer.

And the FCA does not like these numbers.

Megan Butler, the FCA’s executive director of supervision, wholesale and specialists, said it was “deeply concerning and disappointing” that so many transfers were being carried out, despite the FCA’s view that advisers should start from the position that they are unlikely to be suitable for most clients.

The FCA also said that too much of the advice it has come across is “still not of an acceptable standard”.

However, the FCA may be overlooking just how much high-quality advice is carried out by good, professional advisers.

“Some really good transfer advice has been provided,” says Jeannie Boyle, executive director and chartered planner at EQ Investors.

“It’s all too easy to just focus on the bad practice.”

The regulator reports that it has started visiting some firms, beginning with those which are most active in the DB pension market.

Its goal is to complete a full assessment of DB advice, focusing on business models and processes which it believes could have a deleterious outcome.

Unintended consequences

Insistent clients pose other risks for both advisers and consumers.

In March this year, the FCA confirmed that the Financial Ombudsman Service would soon be able to require financial services firms to pay more compensation to consumers and businesses – a leap from the £150,000 limit to £350,000, which has had an impact on the availability and cost of professional indemnity insurance for advisers.

Another possible, unwanted outcome from the hike in compensation is modelled by the FCA in its policy statement of March 8.

The regulator recognises that in a worst-case scenario, based on professional indemnity premium increases forecast by insurers, up to as many as 1,000 advisers could stop providing DB transfer advice because they would be unable to afford the cover.

This would therefore have an impact on the availability of advice for those who need it.

There is no easy solution to the problem of insistent clients.

However, Keith Richards, chief executive of the Personal Finance Society, suggests advisers avoid them altogether, to protect themselves.

As he says: “The best step an adviser can take to protect themselves and from insistent clients from the outset is to refuse to accept their business, and for those who agree to accept advice but subsequently want to ignore it and go against a personal recommendation of suitability, don’t facilitate it – we will be protecting the public and the profession alike.”

Fiona Nicolson is a freelance journalist