Financial Conduct Authority  

What does the FCA say about insistent clients?

This article is part of
Guide to handling insistent clients

What does the FCA say about insistent clients?

Managing insistent clients requires close attention, particularly with regard to pension transfers, as there is much at stake, for both client and adviser.

There are a number of sources of regulatory information for advisers seeking guidance on these issues.

For instance, the Financial Conduct Authority sets out its position on insistent clients in the context of the 2015 pension reforms, in a three-step process. It also provides general, additional guidance for firms with insistent clients in its conduct of business obligations (COBS).

Furthermore, the regulator’s rules for pension transfer advice, updated in October last year, also give direction, as part of its work on improving the quality of pension transfer advice.

The first of the FCA’s three steps will be familiar to advisers, as it follows the normal advice process, that they must provide advice suitable for the individual client and that this must be clear to the client.

Step two emphasises that advisers must make sure that the client is clear about the risks of the course of action they choose.

The FCA also highlights the additional requirements to be undertaken if the advice includes a pension transfer, conversion or opt-out – for instance, ensuring the advice is given by or checked over by a pension transfer specialist; comparing the DB scheme with the DC scheme; and starting from the assumption that the transfer is not suitable.

Thirdly, the FCA says it should be clear to an insistent client that their actions contradict the adviser’s advice.

The regulator also flags up the importance of clearly distinguishing a client’s investment objectives from requests or preferences, before making a recommendation – giving the example that accessing cash from a pension is not an objective.

The FCA highlights some areas of concern from cases that have come their way, that might be useful for advisers to bear in mind, including inadequate assessment of other options that would be a good fit for the client’s objectives; insufficiently clear advice and inadequate explanation of the risks of the client’s preferred course of action.

It also cautions against ‘papering exercises’ where the adviser processes the case on an insistent client basis, when this does not reflect the circumstances. 

The buck stops here

In its additional guidance for firms with insistent clients, the FCA further emphasises that where a firm goes ahead with a transaction for an insistent client which deviates from the firm’s recommendation, it should communicate with them in a way that is clear, fair and not misleading.

The points to get across are that the firm has not recommended the transaction; the reasons why it diverges from their advice; the risks of the client’s proposed transaction; and the reasons why the firm did not recommend that course of action.